Just finished a tutoring session and noticed that the client had some trouble recognizing when a different question was asking the same thing as a previous question he had already nailed. Most people get this first question wrong, but today’s tutoring client nailed it in about 10 seconds:An investor purchased shares of a growth & income fund in early February this year.  In late December this year, she receives a capital gains distribution from the fund.  Therefore

a.this represents a tax-free return of capital
b.the capital gain is tax-exempt to the investor
c.the capital gain is treated as a short-term capital gain
d.the capital gain is taxable at long-term capital gains rates
So, since he nailed that one, I assumed he’d also get this one right:Which of the following represents an accurate statement concerning the tax implications of mutual fund investing?
a.municipal bond mutual funds distribute tax-free long-term capital gains gains distributions are determined by the fund’s holding period, even if the investor has held the shares for less than one year
c.because the mutual fund provides a 1099 form, the investor is relieved of the responsibility to report dividend income to the IRS
d. all dividends distributed are currently taxed at a maximum of 15%Notice how answer choice b is explaining exactly why the client got the first question correct? In the first question, the cap gains distribution was long-term because it was based on the fund’s holding period–not the investor’s. Why then didn’t answer choice b scream out to the candidate?
Not sure. He knew answer a was wrong. He knew C was BS. But, still, he couldn’t choose answer b here.
Maybe he was tired. But, at the testing center I’m hoping he will keep struggling with a question until he sees it in its proper light. For a lot of you, that isn’t happening yet because you’re only spending 15 seconds on a question. You want to know the answer without figuring out the question. That doesn’t work, people. Be willing to figure out the questions, and you will end up getting licensed. Need help on the series 65?

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Partnerships Question


The Series 65/66 exams definitely consider limited and general partnerships to be fair game, as they indicate on their exam outlines. How would you navigate a question like this one …

Which of the following is an accurate statement of the business structures known as “general partnerships” and/or “limited partnerships”?
A. only limited partnerships allow for direct flow-through of income and expenses
B. both ownership structures leave at least some owners with unlimited liability
C. general partnerships are no longer enforceable effective January 1, 2011
D. general partnerships relieve the owners of personal liability

EXPLANATION: a general partnership is really just a sole proprietorship with more than one owner. These folks want to go into business together, so they form a general partnership. It does provide for flow-through of income and expenses, but it also leaves all general partners personally liable for debts and lawsuits of and against the business. To form a limited partnership, you have to have at least one general partner (GP), and GP’s always have unlimited liability. Don’t read a choice like Choice C and automatically assume you forgot to study something. The Exam occasionally makes stuff up to see if you’ll fall for it when a much better answer was available. Don’t do that. Instead choose answer …


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LAST CHANCE to register for FREE CLASSES on Series 6 7 63 65 or 66 – Classes begin tomorrow



September 9, 2013

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LAST CHANCE to Register for FREE CLASSES on the Series 6 7 63 65 or 66 – Classes begin Tomorrow



Hello Friend, is excited to announce our 

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Date Classes that apply to the Series 6, 7, 63, 65 & 66 Sign Up Now
Week 1 Class Schedule FREE CLASS – Economic Factors and Business Reporting

FREE CLASS – Equity and Debt Securities

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FREE CLASS – Pass The 6 & 63

FREE CLASS – Uniform Securities Act: Administration of the Act

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Week 2 Classes Equity and Debt Securities


Tax-Advantaged Plans

Uniform Securities Act: Registration of Persons

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Week 3 Classes Economic Factors and Business Reporting

Equity and Debt Securities

Investment Risks and Approaches

Uniform Securities Act: Administration of the Act

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Week 4 Classes Economic Factors and Business Reporting

Equity and Debt Securities

Investment Risks and Approaches

Uniform Securities Act: Administration of the Act

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Week 5 Classes Economic Factors and Business Reporting

Equity and Debt Securities

Investment Risks and Approaches

Uniform Securities Act: Administration of the Act

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Week 6 Classes Economic Factors and Business Reporting

Equity and Debt Securities

Investment Risks and Approaches

Uniform Securities Act: Administration of the Act

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Equity and Debt Securities

Investment Risks and Approaches

Uniform Securities Act: Administration of the Act

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Variable Annuities Question

Variable Annuities

Happy Friday everyone, let’s end the week with a practice question. The exam will likely ask you 3 or more questions on variable annuities. How would you answer something like this:

Which of the following statements is/are true of non-qualified variable annuities?
I. the annuitant’s return of principal is guaranteed
II. the annuitant’s net deposits into the account equal her cost basis
III. the annuitant is subject to penalties on withdrawals prior to age 59 1/2
IV. the annuitant is subject to penalties if withdrawals do not commence by age 70 1/2

A. I
C. I, IV

EXPLANATION: choice “I” is true only during the accumulation phase due to the death benefit, but the statement falls apart during the annuity phase and, therefore, has to be eliminated. The variable annuity does not promise a return of principal, which is one of the risks disclosed in the prospectus and sales literature. If the annuitant dies during the accumulation period, the beneficiaries receive at least what he put in, but when the contract is annuitized, there is no guarantee on what will be received. So, eliminate choices A and C. Now, you get II and III for free because they are both in the remaining two choices. The only difference between B and D is that one contains choice “IV” and one doesn’t. So, do withdrawals have to begin at age 70 1/2? Even though the 10% early withdrawal penalty is there, the annuitant does not have to start taking money out at age 70 1/2… not on a non-qualified variable annuity. Choice D is eliminated, leaving you with …


Also remember that a qualified variable annuity would be subject to lifetime maximum contributions and would force the annuitant to begin withdrawals at age 70 1/2. So, as always, read each test question very carefully.

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Balance Sheet Question

Advances to Partners, Officers

As I’ve written, I’m not sure why investors would allow their investment adviser to also maintain custody of the account assets. I mean, if the investments are doing poorly, what’s to stop the adviser from making up his own numbers, or—worse—making withdrawals out of dividend and interest income that the client never finds out about?

But, some advisers do have custody. If so, the firm has to maintain a minimum net worth. NASAA says in one of their model rules that the minimum net worth for such an adviser is $35,000. They then define “net worth” in frightful legalese. Let’s imagine what a test question might look like on the Series 65/66 exam:

Hickory Stick Advisory Partners are deemed to have custody of client assets. When filing their balance sheet, the firm should include in its assets which of the following items?
A. prepaid expenses
B. loans to a senior partner
C. loans to a silent partner
D. marketable securities

EXPLANATION: the NASAA model rule on minimum financial requirements for advisers specifically tells advisers not to include prepaid expenses or loans to partners—if the firm is a partnership—or to officers or stockholders—if the firm is a corporation. Seems like a good idea to me. If the advisory business is doing poorly, what are the chances that the partners are doing well enough to repay the loan they took out? Talk about some shaky assets. Marketable securities have a value—they are an asset.

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