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Series 65 Exam Cram Sheet
Registration Requirements
- SEC registration: AUM ≥ $110M (required) or $100-110M (optional)
- State registration: AUM < $100M
- IAR: registers in state where they have client residence (not where they work)
- Exempt: advisers with <15 clients and no public advertising, certain institutional advisers
- Form ADV Part 1: filed with SEC/state (background info) | Part 2: brochure delivered to clients
- Brochure delivered: before or at engagement; annually thereafter; when material changes occur
Fiduciary & Ethics Rules
- Fiduciary duty: act in client's best interest, full disclosure, no self-dealing
- Disclose: all material conflicts of interest, compensation arrangements, disciplinary history
- Prohibited: churning, front-running, unauthorized trading, sharing in client profits
- Insider trading: illegal to trade or tip on material non-public information
- Performance ads: no cherry-picked periods; must show same period for all accounts; past performance disclaimer required
- Gifts: FINRA limit $100/year/person for broker-dealer employees
Securities Law Framework
- Securities Act 1933: governs primary market (new issuances); registration requirements
- Securities Exchange Act 1934: governs secondary market; created SEC; anti-fraud rules
- Investment Advisers Act 1940: regulates investment advisers; federal vs state thresholds
- Investment Company Act 1940: regulates mutual funds and closed-end funds
- Section 206 IA Act: anti-fraud provision; no safe harbor; applies to all advisers
- Reg S-P: privacy rule; customer notice required; limits data sharing
Fixed Income Essentials
- Bond price ↑ when yield ↓ (inverse relationship — always)
- Duration: price sensitivity to rate change; longer maturity = higher duration = more rate risk
- Call risk: issuer calls bond when rates fall; investor must reinvest at lower rates
- Credit risk: default risk; rated by Moody's, S&P, Fitch; investment grade ≥ BBB-/Baa3
- Municipal bonds: tax-exempt at federal level; compare to taxable using tax-equivalent yield
- TIPS: principal adjusts with CPI; real yield stays constant
- Yield curve normal (upward) → flat → inverted (recession signal)
Portfolio Theory & Metrics
- Beta: systematic risk (cannot diversify away) | Standard deviation: total risk
- Alpha: excess return vs benchmark | Sharpe ratio: return per unit of total risk
- CAPM: E(R) = Rf + β(Rm - Rf)
- Correlation: -1 to +1; lower correlation = better diversification benefit
- Efficient frontier: set of optimal portfolios maximizing return for given risk
- Dollar-cost averaging: reduces average cost; removes emotion from timing
- Asset allocation: strategic (long-term) vs tactical (short-term adjustments)
Economic Indicators
- Leading (predict): stock prices, building permits, consumer confidence, M2 money supply, yield curve
- Lagging (confirm): unemployment rate, CPI, outstanding loans, average prime rate
- Coincident (current): GDP, industrial production, personal income, retail sales
- Inverted yield curve: strongest recession predictor
- Fed tools: open market operations (primary), discount rate, reserve requirements, IOR
- Expansion: GDP rising, unemployment falling, inflation rising
- Recession: 2+ consecutive quarters of negative GDP growth
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