Series 66 Practice Exam.
Free practice test — 104 quality-checked questions, instant feedback.

1. 1. A firm is budgeting registration expenses for a new representative who must take the Series 66. What is the cost of the examination?

   • A. $177
   • B. $155
   • C. $127
   • D. $200
   Show answer & explanation

   Answer: A
   The cost of the Series 66 exam is $177. The remaining figures are distractors and do not represent the official fee.

2. 2. A client holds a bond portfolio and is concerned that rising market interest rates will reduce the value of her holdings. This concern is MOST directly a description of which risk?

   • A. Interest-rate risk
   • B. Liquidity risk
   • C. Currency risk
   • D. Credit (default) risk
   Show answer & explanation

   Answer: A
   Interest-rate risk is the risk that a bond's market price will decline when prevailing interest rates rise, because existing bonds with lower coupons become less attractive relative to newly issued bonds.

3. 3. An advisor explains to a client that a mutual fund's net asset value (NAV) per share is calculated by:

   • A. Subtracting the sales load from the public offering price
   • B. Dividing total fund assets minus liabilities by the number of shares outstanding
   • C. Multiplying the number of outstanding shares by the current market price
   • D. Adding the fund's expense ratio to its dividend yield
   Show answer & explanation

   Answer: B
   A mutual fund's NAV per share equals the total value of the fund's assets, less its liabilities, divided by the number of shares outstanding. Open-end fund shares are priced at NAV (plus any applicable sales charge).

4. 4. A municipal bond's interest is generally exempt from federal income tax. For an investor, this feature is MOST relevant when evaluating:

   • A. The number of shares outstanding
   • B. The bond's credit rating relative to Treasuries
   • C. The bond's par value at issuance
   • D. The after-tax yield compared to a taxable bond of similar risk
   Show answer & explanation

   Answer: D
   Because municipal bond interest is typically exempt from federal income tax, the appropriate comparison is the bond's tax-equivalent (after-tax) yield against a comparable taxable bond, which is especially meaningful for investors in higher tax brackets.

5. 5. A client nearing retirement wants to minimize the chance of losing principal but accepts a lower expected return. Which product characteristic aligns BEST with this objective?

   • A. A concentrated position in a single growth stock
   • B. A short-term, high-credit-quality debt instrument with low price volatility
   • C. A leveraged derivative position
   • D. A speculative small-company equity fund
   Show answer & explanation

   Answer: B
   A short-term, high-credit-quality debt instrument generally has lower price volatility and lower credit risk, aligning with a conservative investor's goal of preserving principal while accepting a modest return. The other choices carry substantially higher risk of principal loss.

6. 6. Which statement BEST captures why longer-maturity bonds are generally more sensitive to changes in interest rates than shorter-maturity bonds of the same credit quality?

   • A. Maturity has no relationship to a bond's price sensitivity
   • B. A longer stream of future cash flows means a given change in rates has a larger cumulative effect on present value, increasing price sensitivity
   • C. Shorter-maturity bonds have no exposure to interest-rate movements
   • D. Longer-maturity bonds always pay higher coupons, offsetting rate changes
   Show answer & explanation

   Answer: B
   The longer a bond's maturity, the longer the stream of fixed cash flows exposed to discounting. A change in market interest rates therefore has a larger cumulative effect on the bond's present value, making longer-maturity bonds more price-sensitive (greater interest-rate risk) than otherwise comparable shorter-maturity bonds.

7. 7. An investor is comparing two fixed-income securities. Which characteristic BEST distinguishes a zero-coupon bond from a traditional coupon-paying bond?

   • A. It is sold at a discount and pays no periodic interest, returning face value at maturity
   • B. It guarantees a floating rate tied to a benchmark index
   • C. It has no maturity date and pays a perpetual dividend
   • D. It pays interest semiannually until maturity
   Show answer & explanation

   Answer: A
   A zero-coupon bond makes no periodic interest payments; it is purchased at a discount to par and the investor's return is the difference between the discounted purchase price and the face value received at maturity.

8. 8. Which statement BEST describes the primary difference between common stock and preferred stock with respect to income and claims?

   • A. Preferred stockholders typically receive a fixed dividend and rank ahead of common stockholders in liquidation
   • B. Common stockholders receive a fixed dividend and have priority over preferred stockholders in liquidation
   • C. Preferred stock always carries greater voting power than common stock
   • D. Both classes have identical voting rights and dividend priority
   Show answer & explanation

   Answer: A
   Preferred stock generally pays a fixed dividend and holds a senior claim to common stock on dividends and on assets in the event of liquidation, while common stock typically carries voting rights and residual claims.

9. 9. Which of the following features is characteristic of a variable annuity, as distinguished from a fixed annuity?

   • A. The account value and payout fluctuate based on the performance of underlying subaccount investments
   • B. The insurer guarantees a fixed rate of return for the life of the contract
   • C. The contract carries no investment risk to the owner
   • D. Payments are backed solely by the FDIC
   Show answer & explanation

   Answer: A
   In a variable annuity, the contract owner bears investment risk because the account value and the eventual payout vary with the performance of the underlying subaccounts, unlike a fixed annuity where the insurer guarantees a set rate.

10. 10. A client asks why diversifying a stock portfolio across many unrelated companies does not eliminate ALL risk. The BEST response is that diversification reduces:

    • A. Systematic (market) risk but not unsystematic risk
    • B. Both systematic and unsystematic risk completely
    • C. Unsystematic (company-specific) risk but not systematic risk
    • D. Neither type of risk, because risk is fixed regardless of holdings
    Show answer & explanation

    Answer: C
    Diversification reduces unsystematic (company- or industry-specific) risk by spreading exposure across many holdings, but it cannot remove systematic (market) risk, which affects the market as a whole and cannot be diversified away.

11. 11. An investor buys a call option on a stock. Which statement BEST describes the buyer's rights and maximum loss?

    • A. The buyer must exercise the option at expiration regardless of price
    • B. The buyer has the right, not the obligation, to buy the stock at the strike price, with maximum loss limited to the premium paid
    • C. The buyer's maximum loss equals the full market value of the underlying stock
    • D. The buyer is obligated to sell the stock and may lose an unlimited amount
    Show answer & explanation

    Answer: B
    A call option gives the buyer the right, but not the obligation, to purchase the underlying stock at the strike price before expiration. If the option expires worthless, the buyer's loss is limited to the premium paid for the option.

12. 12. A client's portfolio gained 12 percent while inflation ran at 4 percent. What was the approximate real return?

    • A. About 16 percent
    • B. About 8 percent
    • C. About 12 percent
    • D. About 3 percent
    Show answer & explanation

    Answer: B
    Real return approximates nominal return minus inflation, so 12 minus 4 gives about 8 percent of genuine purchasing power gain. The precise calculation divides one plus the nominal rate by one plus inflation and subtracts one, which yields about 7.7 percent, but the subtraction approximation is standard for client discussion.

13. 13. A client establishes a trust during her lifetime and retains the right to amend or revoke it at any time. What is the general treatment of the trust assets for estate tax purposes at her death?

    • A. Half the assets are included and half excluded
    • B. The assets are excluded because the trust is a separate legal entity
    • C. The assets are excluded if the trust was funded more than three years before death
    • D. The assets are included in her gross estate because she retained control
    Show answer & explanation

    Answer: D
    A revocable living trust avoids probate and provides incapacity management, but retained power to revoke means the grantor never gave up control, so the assets remain in the gross estate. An irrevocable trust properly structured can remove assets from the estate, which is the trade-off: estate exclusion in exchange for surrendering control.

14. 14. A trust is required to distribute all of its income currently and makes no distributions of principal. How is this trust classified for income tax purposes?

    • A. A charitable remainder trust
    • B. A grantor trust
    • C. A complex trust
    • D. A simple trust
    Show answer & explanation

    Answer: D
    A simple trust must distribute all income currently, makes no charitable contributions and distributes no principal in the year. A complex trust may accumulate income, distribute principal or make charitable gifts. A grantor trust is one where the grantor retains sufficient control that its income is taxed to the grantor personally.

15. 15. An account is opened under the Uniform Transfers to Minors Act. Which statement is accurate?

    • A. The custodian may reclaim the assets at any time
    • B. The account is an irrevocable gift to the minor, who takes control at the age of majority set by state law
    • C. The account may have joint custodians and multiple minors
    • D. The minor may direct trades in the account before reaching majority
    Show answer & explanation

    Answer: B
    A UTMA gift is irrevocable and belongs to the minor, who receives control at the statutory age. There may be only one custodian and one minor per account, and the custodian, not the minor, directs the account until transfer. Assets are also counted as the student's on financial aid formulas, which weighs against UTMA for education funding.

16. 16. A client wants to fund a grandchild's college education with tax-free growth for qualified education expenses and retain the ability to change the beneficiary. Which vehicle best fits?

    • A. A UTMA account
    • B. A Roth IRA in the grandchild's name
    • C. A Section 529 plan
    • D. A revocable living trust
    Show answer & explanation

    Answer: C
    A 529 plan provides tax-free growth and withdrawals for qualified education expenses, allows the account owner to retain control and to change the beneficiary to another family member, and permits front-loading several years of annual exclusion gifts. A UTMA is irrevocable and vests in the minor, and a Roth IRA requires the beneficiary to have earned income.

17. 17. Two individuals form a business in which both have unlimited personal liability for business debts and income flows through to their personal returns. Which entity is this?

    • A. A limited partnership with two limited partners
    • B. A C corporation
    • C. A general partnership
    • D. A limited liability company
    Show answer & explanation

    Answer: C
    A general partnership passes income through to the partners and exposes each to unlimited joint liability. A C corporation provides limited liability but is taxed at the entity level, creating double taxation on dividends. An LLC combines pass-through taxation with limited liability, and a limited partnership must have at least one general partner with unlimited liability.

18. 18. A client owns a C corporation and is comparing it to an S corporation election. What is the principal tax difference?

    • A. A C corporation is taxed at the entity level with dividends taxed again to shareholders, while an S corporation generally passes income through once
    • B. Both are taxed identically; the difference is only in liability protection
    • C. Neither entity pays any federal income tax
    • D. An S corporation is taxed twice while a C corporation is taxed once
    Show answer & explanation

    Answer: A
    The C corporation pays corporate tax and shareholders pay again on dividends, the classic double taxation. An S corporation election passes income, losses, deductions and credits through to shareholders, avoiding entity-level tax, but imposes eligibility limits on the number and type of shareholders and permits only one class of stock.

19. 19. An adviser distinguishes a client's risk tolerance from her risk capacity. What does risk capacity measure?

    • A. The client's emotional comfort with portfolio volatility
    • B. The client's stated preference on a questionnaire
    • C. The standard deviation of the client's current portfolio
    • D. The client's objective financial ability to absorb loss without derailing her goals
    Show answer & explanation

    Answer: D
    Risk capacity is objective: time horizon, income stability, liquidity needs, existing assets and the consequences of falling short. Risk tolerance is psychological willingness to endure volatility. The two frequently diverge, and the binding constraint is whichever is lower, since a client who can afford risk but panics and sells will not realize the expected return.

20. 20. A retiree selects a straight life annuity payout rather than a joint and survivor option. What is the consequence?

    • A. A lump sum is paid to the estate at death
    • B. Payments continue to a named survivor for life
    • C. The largest periodic payment, but payments cease entirely at the annuitant's death
    • D. The smallest periodic payment, with a guaranteed minimum number of payments
    Show answer & explanation

    Answer: C
    A straight life or life-only payout produces the highest income because the insurer's obligation ends at the annuitant's death with nothing to beneficiaries. Adding a period certain, a refund feature or a joint and survivor provision each reduces the payment in exchange for continuing benefits. This trade-off is central to a retirement income recommendation.

21. 21. A client takes a distribution from a traditional IRA at age 52 that does not meet any exception. What is the tax consequence?

    • A. Long-term capital gains tax only
    • B. No tax, because IRA distributions are always tax free
    • C. Ordinary income tax on the taxable amount plus a 10 percent additional tax
    • D. A 50 percent excise tax on the distribution
    Show answer & explanation

    Answer: C
    Distributions before age 59 and a half generally incur ordinary income tax plus a 10 percent additional tax unless an exception applies, such as disability, substantially equal periodic payments, certain medical expenses or a first-time home purchase up to the statutory limit. The 50 percent figure historically related to failing to take a required minimum distribution, a different penalty.

22. 22. A client asks whether contributions to a traditional IRA are deductible. What determines the answer?

    • A. Whether the IRA is held at a bank or a broker-dealer
    • B. Deductibility is unlimited for all taxpayers
    • C. Whether the client is older than 50
    • D. Whether the client or spouse is covered by an employer retirement plan, and the client's modified adjusted gross income
    Show answer & explanation

    Answer: D
    Deductibility phases out based on modified adjusted gross income when the taxpayer or spouse is covered by an employer plan. Without such coverage the deduction is generally available regardless of income. Age affects the catch-up contribution amount rather than deductibility, and the custodian type is irrelevant.

23. 23. An adviser reviews a client's life insurance and finds a policy where the death benefit and cash value vary with the performance of separate account subaccounts. What type of policy is this, and what license does selling it require?

    • A. Universal life; it requires only a securities registration
    • B. Term life; it requires only an insurance license
    • C. Whole life; it requires only an insurance license
    • D. Variable life; it requires both an insurance license and a securities registration
    Show answer & explanation

    Answer: D
    Variable life and variable universal life pass investment risk to the policyholder, making them securities as well as insurance contracts, so a producer must hold both an insurance license and the appropriate securities registration. Whole life and traditional universal life have insurer-guaranteed elements and are insurance products only.

24. 24. A client asks about the tax treatment of a life insurance death benefit paid to a named individual beneficiary. What is the general rule?

    • A. The death benefit is generally received income tax free by the beneficiary
    • B. The death benefit is subject to the 10 percent early distribution tax
    • C. The full death benefit is taxed as ordinary income
    • D. The death benefit is taxed as long-term capital gain
    Show answer & explanation

    Answer: A
    Life insurance death proceeds are generally excluded from the beneficiary's gross income. That is an income tax rule, not an estate tax rule: if the insured owned the policy or held incidents of ownership, the proceeds are still includable in the gross estate, which is why an irrevocable life insurance trust is a common planning structure.

25. 25. An adviser participates in a wrap fee program in which a single fee covers advisory services and execution. What special disclosure obligation applies?

    • A. Written client consent before each trade
    • B. Delivery of a wrap fee program brochure describing the program's services, fees and conflicts
    • C. No special disclosure, since the fee is bundled
    • D. Only an annual statement of trades executed
    Show answer & explanation

    Answer: B
    Sponsors of wrap fee programs must deliver a specific wrap brochure, Form ADV Part 2A Appendix 1, because the bundled structure creates distinct conflicts: an adviser paid a flat fee has an incentive to trade less, and the client may pay for execution capacity they do not use. Suitability of the wrap structure itself must be evaluated for each client.

26. 26. An investment adviser compensates a third party for referring clients. Under the current marketing framework, what is generally required?

    • A. Prior approval of each referral by the state Administrator
    • B. Disclosure of the compensation and the promoter's status, a written agreement in most cases, and adviser oversight
    • C. The promoter must independently register as an investment adviser in every case
    • D. Nothing, because referral fees are outside the adviser's regulatory obligations
    Show answer & explanation

    Answer: B
    Paid endorsements and solicitations require clear and prominent disclosure of the compensation and any material conflicts, generally a written agreement with the promoter, adviser oversight of compliance, and disqualification screening. Very small compensation arrangements have reduced conditions, but disclosure of the paid relationship remains the core requirement.

27. 27. Under state law, an investment advisory contract must generally include which provision?

    • A. A guarantee of a minimum annual return
    • B. Authorization for the adviser to take custody of all client assets
    • C. A description of services, the fee and the term, with no assignment without client consent
    • D. A waiver of the client's right to sue the adviser
    Show answer & explanation

    Answer: C
    Advisory contracts must state the services, the formula for compensation, the term, and provide that no assignment occurs without client consent, with notice of changes in partnership membership where applicable. Hedge clauses purporting to waive client rights are prohibited, and any provision waiving compliance with the securities laws is void.

28. 28. An adviser's brochure contains a clause stating the adviser is not liable for any loss regardless of cause. What is the problem?

    • A. It is a prohibited hedge clause that misleads clients about their non-waivable rights
    • B. It is permissible only for institutional clients
    • C. It is permissible if the adviser carries errors and omissions coverage
    • D. Nothing, provided the client initials the clause
    Show answer & explanation

    Answer: A
    Hedge clauses that suggest a client has waived non-waivable rights of action are misleading and prohibited, because federal and state securities law rights cannot be waived. Client initials do not cure it, since the defect is the misleading impression the clause creates rather than the absence of consent.

29. 29. An investment adviser representative discovers she will receive a bonus for placing client assets in her firm's proprietary funds. What must she do?

    • A. Nothing, because the bonus is paid by her employer rather than the client
    • B. Decline the bonus but continue recommending the funds without disclosure
    • C. Disclose the compensation arrangement to clients so they can evaluate the conflict
    • D. Disclose only if a client specifically asks about her compensation
    Show answer & explanation

    Answer: C
    Compensation that varies with the product recommended is a material conflict requiring full and fair disclosure, whoever pays it. The fiduciary standard requires informed consent, which a client cannot give without knowing the incentive. Waiting to be asked is not disclosure, and quietly declining the bonus does not address the proprietary product conflict itself.

30. 30. An adviser aggregates several clients' orders for the same security into a single block trade. What is required for this to be acceptable?

    • A. A written allocation policy applied fairly, with each participating account receiving the average price
    • B. Nothing, since block trading always benefits clients
    • C. Allocation of the best fills to the largest accounts
    • D. Allocation of the best fills to the adviser's own account first
    Show answer & explanation

    Answer: A
    Bunching orders can lower costs, but it must operate under a disclosed written policy allocating fills fairly, typically at the average execution price, with partial fills allocated pro rata. Cherry-picking, assigning favorable executions to preferred or proprietary accounts after the fact, is a serious violation and a recurring enforcement theme.

31. 31. An adviser executes trades for a client's account and must consider more than commission rate when selecting a broker. What is this obligation called?

    • A. Directed brokerage, which requires the client to select the broker
    • B. Payment for order flow, which requires routing to the highest bidder
    • C. Best execution, which considers execution quality, speed, reliability and cost together
    • D. Lowest commission, which requires selecting the cheapest broker in every case
    Show answer & explanation

    Answer: C
    Best execution requires seeking the most favorable terms reasonably available under the circumstances, weighing price, speed, likelihood of execution, settlement reliability and total cost. It is not a mandate to pay the lowest commission, and advisers must periodically and systematically evaluate the brokers they use against alternatives.

32. 32. A client directs the adviser to use a specific broker-dealer for all trades. What must the adviser disclose?

    • A. That directed brokerage may prevent the adviser from obtaining best execution or aggregating orders, potentially costing the client more
    • B. Nothing, because the client made the choice
    • C. That the client must first liquidate the account
    • D. That the adviser will receive soft dollar credits in every case
    Show answer & explanation

    Answer: A
    When a client directs brokerage, the adviser may be unable to negotiate rates, aggregate the client's orders with others, or select the venue offering the best terms, and the client may therefore receive worse execution or pay more. The adviser must disclose these consequences so the direction is an informed choice.

33. 33. An adviser maintains a code of ethics. Which requirement is a standard component under the Advisers Act?

    • A. A requirement that all employees invest only in the adviser's own funds
    • B. Annual disclosure of every employee's salary to clients
    • C. Reporting of personal securities holdings and transactions by access persons
    • D. A prohibition on all personal securities ownership by employees
    Show answer & explanation

    Answer: C
    The code of ethics rule requires a standard of business conduct, compliance with securities laws, reporting of personal holdings and transactions by access persons, pre-approval of investments in initial public offerings and limited offerings, and prompt internal reporting of violations. It regulates personal trading rather than banning it.

34. 34. A client's account has been managed for three years and the client's circumstances have changed substantially after a divorce. What does the adviser's duty of care require?

    • A. Waiting for the client to request a review
    • B. Continuing the original strategy because it was suitable when adopted
    • C. Updating the client profile and reassessing whether the strategy remains suitable
    • D. Liquidating the account to cash pending new instructions
    Show answer & explanation

    Answer: C
    For an ongoing advisory relationship, the duty of care includes providing advice that remains suitable over time, which requires periodic updating of the client's objectives, circumstances and risk profile. A material life event such as divorce, job loss or inheritance is precisely the trigger for reassessment rather than something to await a client request about.

35. 35. A married couple holds a joint account. One spouse calls and asks to change the mailing address and add a new bank link for withdrawals. What should the firm do?

    • A. Process it immediately, since either joint owner may act alone in all respects
    • B. Refuse all changes on joint accounts
    • C. Verify the instruction under the firm's procedures, which typically require confirmation from both owners for changes affecting disbursements
    • D. Process it and notify the other spouse a month later
    Show answer & explanation

    Answer: C
    Although either joint owner may generally trade, changes to address and disbursement instructions are a classic elder-abuse and account-takeover pattern, so firms apply heightened verification and commonly require both owners to authorize them. Silent processing followed by delayed notification defeats the control's purpose.

36. 36. An adviser receives a client's instruction by email to wire 50,000 dollars to a new overseas account, and the email address matches the client's file. What is the appropriate step?

    • A. Process the wire and then confirm by email reply
    • B. Process the wire because the email address matches
    • C. Verify the request through a separate channel, such as a call to a known phone number, before acting
    • D. Forward the request to the custodian without review
    Show answer & explanation

    Answer: C
    Email accounts are routinely compromised, so a matching address proves nothing, and replying by email reaches whoever controls the inbox. Out-of-band verification using contact details already on file is the standard control, and a first-time overseas wire to a new destination is among the highest-risk patterns a firm encounters.

37. 37. An adviser is required to have written policies reasonably designed to safeguard client records and information. Which regulation imposes this?

    • A. Regulation SHO
    • B. Regulation S-P
    • C. Regulation M
    • D. Regulation T
    Show answer & explanation

    Answer: B
    Regulation S-P requires privacy notices and, through its safeguards provision, written policies to protect customer records against unauthorized access and to dispose of consumer report information properly. Regulation SHO governs short sales, Regulation M addresses distribution manipulation, and Regulation T sets margin credit terms.

38. 38. An adviser wants to recommend that a client liquidate a variable annuity purchased four years ago and buy a new one. What is the primary concern?

    • A. The only requirement is that the new contract have a higher death benefit
    • B. There is no concern because a 1035 exchange is always tax free
    • C. Surrender charges, a new surrender period and lost benefits may make the exchange unsuitable; the comparison must be documented
    • D. Annuity exchanges are prohibited outright
    Show answer & explanation

    Answer: C
    Replacing an annuity commonly triggers a surrender charge, restarts a multi-year surrender schedule and can forfeit accrued living or death benefit guarantees. A Section 1035 exchange addresses income tax deferral only and says nothing about suitability, so the adviser must compare costs and features and document why the replacement benefits the client.

39. 39. A client is 70 and wants inflation-adjusted lifetime income with no exposure to market losses. Which product characteristic best matches the objective?

    • A. A deferred variable annuity with aggressive equity subaccounts
    • B. An immediate annuity with a cost of living adjustment rider
    • C. A concentrated dividend stock position
    • D. A portfolio of long-dated zero-coupon corporate bonds
    Show answer & explanation

    Answer: B
    An immediate annuity converts a lump sum into guaranteed lifetime income, and a cost of living rider addresses purchasing power erosion, at the cost of a lower starting payment and loss of liquidity. Variable subaccounts and equity concentration reintroduce market risk, and zero-coupon bonds pay nothing until maturity, providing no income at all.

40. 40. A client's stated objective is current income with modest growth and low volatility, but the adviser places 70 percent of the portfolio in small-cap growth funds. Which duty has been breached?

    • A. The duty of care, because the advice lacks a reasonable basis for this client
    • B. No duty is breached if the funds subsequently perform well
    • C. The duty to disclose the adviser's fee schedule
    • D. The duty of confidentiality
    Show answer & explanation

    Answer: A
    The duty of care requires advice with a reasonable basis in light of the client's objectives and circumstances, tested at the time the advice is given. Subsequent performance does not cure an unsuitable recommendation; a strategy inconsistent with a stated income and low-volatility objective is a breach whether it makes money or loses it.

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