60 Series 65 Exam Concepts You Need to Know Before Test Day

Monetary policy comes from the Federal Reserve and works through the money supply and interest rates. When the Fed wants to stimulate, it lowers rates and injects reserves; when it wants to cool inflation, it raises rates and drains reserves. Fiscal policy comes from Congress and the President through taxation and government spending. The key mechanism for investors: loose monetary policy tends to push bond prices up and makes borrowing cheaper, often lifting stocks, while expansionary fiscal policy can boost demand but widen deficits. The two can work in opposite directions at once, which is why you must identify the source before predicting the market effect.

Memory hook:Fed moves money and rates; Congress moves taxes and spending. Match the actor to the tool.

The yield curve plots Treasury yields against maturities. Normal curves slope upward because longer maturities demand extra compensation for time and rate risk. A flat curve signals uncertainty about growth. An inverted curve, where short yields exceed long yields, has historically preceded recessions because it implies the market expects rates to fall with a slowing economy. Credit spreads, the yield gap between corporate and Treasury bonds of similar maturity, widen when investors fear economic trouble and default risk rises, and narrow when confidence improves. Watch the relationship: in a flight to quality, Treasury prices rise while riskier bond prices fall, widening spreads even if the overall level of rates drops.

Memory hook:Inverted curve equals recession watch; scared investors widen spreads and buy Treasuries.

Inflation is a sustained rise in the general price level; deflation is a sustained fall. The Consumer Price Index measures inflation by tracking the cost of a fixed basket of goods and services purchased by urban consumers. The mechanism that matters for clients: inflation erodes purchasing power, so a bond paying 3 percent in a 4 percent inflation environment produces a negative real return. Real return equals nominal return minus inflation. Fixed-income investors are hurt by unexpected inflation, while borrowers benefit because they repay with cheaper dollars. Deflation is its own danger because it encourages postponing purchases, which deepens economic slowdowns. CPI is the standard yardstick, though it reflects consumer prices rather than producer or wholesale costs.

Memory hook:Real return equals nominal minus inflation; CPI tracks the consumer basket.

Economists sort indicators by timing relative to the business cycle. Leading indicators move before the economy turns and include stock market prices, building permits, new orders for durable goods, initial unemployment claims, and the money supply. Coincident indicators move roughly with the economy, such as industrial production, personal income, and employment levels. Lagging indicators confirm what already happened and include the unemployment rate, corporate profits reported after the fact, and changes in the prime rate. The decision rule for analysis: use leading indicators to anticipate, coincident to confirm, and lagging to verify. Interest rate changes themselves often lag, which trips up candidates who assume rates lead.

Memory hook:Leading predicts, coincident tracks, lagging confirms. Stocks lead; unemployment lags.

Three core statements matter. The income statement shows revenues, expenses, and profit over a period. The balance sheet is a snapshot at a point in time: assets equal liabilities plus shareholders' equity. The statement of cash flows tracks actual cash in and out, which reveals whether reported earnings are backed by real money. Auditors issue opinions on the statements. An unqualified opinion, often called a clean opinion, means the statements fairly present the financial position. A qualified opinion flags a specific limitation or deviation, such as an inventory valuation the auditor could not verify. The distinction matters because a qualified opinion is a warning sign, not an endorsement, and advisers should treat it as a red flag when evaluating a company.

Memory hook:Unqualified equals clean; qualified equals caveat. The better-sounding word is the worse opinion.

Cash accounting records revenue when cash is received and expenses when cash is paid, which is simple but can distort performance timing. Accrual accounting records revenue when earned and expenses when incurred, regardless of when money moves, so it matches income with the effort that produced it. The mechanism to grasp: a company can report strong accrual profits while bleeding cash if customers pay slowly, which is why the statement of cash flows is the reality check. Most larger companies must use accrual accounting because it gives a fairer picture of ongoing operations. When analyzing a business, compare accrual earnings with actual cash flow; a persistent gap between the two suggests earnings quality problems.

Memory hook:Accrual records when earned; cash records when received. Earnings versus money in the door.

Net present value discounts all future cash flows back to today at a required rate and subtracts the initial investment; a positive NPV means the investment beats the required return. Internal rate of return is the discount rate that makes NPV exactly zero, meaning it is the investment's actual expected return. Decision rule: accept projects with positive NPV or IRR above the required rate. The ratios test liquidity and leverage. Current ratio equals current assets divided by current liabilities; quick ratio strips out inventory, so it is the stricter liquidity test; debt-to-equity compares total debt to shareholder equity, where a higher number signals more leverage. A company can pass the current ratio but fail the quick ratio if it is sitting on slow-moving inventory.

Memory hook:IRR is where NPV hits zero; quick ratio pulls inventory out of current assets.

Mean is the average, median is the middle value, and mode is the most frequent; with skewed data, the median often describes typical experience better than the mean. Range is the high minus the low, and standard deviation measures how widely returns scatter around the mean, which makes it the standard proxy for total risk or volatility. For risk-adjusted performance, beta measures a portfolio's sensitivity to market movements, where 1.0 moves with the market and above 1.0 amplifies it. Alpha is return above what beta would predict, so positive alpha means the manager added value. The Sharpe ratio divides excess return over the risk-free rate by standard deviation, rewarding more return per unit of total risk. Higher Sharpe means better risk-adjusted results.

Memory hook:Standard deviation equals total risk; beta equals market risk; Sharpe equals excess return per unit of volatility.

Systematic risk affects the entire market and cannot be diversified away: interest rate risk, geopolitical events, recessions, and broad market moves. Unsystematic risk is specific to one company or industry, such as credit risk, litigation, or management failure, and diversification reduces it. The practical rule: adding more stocks eliminates most unsystematic risk, but systematic risk remains no matter how many positions you hold, which is why it is called market risk. Separately, when a company liquidates, claims are paid in a fixed order: secured creditors and bondholders first, then preferred stockholders, then common stockholders, who are last and often receive nothing. This priority explains why bonds yield less than stocks; their claims are safer.

Memory hook:Systematic survives diversification; unsystematic dies with it. Liquidation pays debt, preferred, common, in that order.

Money market instruments are short-term, highly liquid debt with maturities of one year or less. Treasury bills are sold at a discount from face value and pay no coupon; the return is the difference between the discount purchase price and par at maturity, and they carry the full backing of the U.S. government, making them the closest thing to a risk-free asset. Commercial paper is unsecured corporate debt, typically issued with maturities up to 270 days, often to avoid SEC registration, and it trades at a discount the same way. Because commercial paper is unsecured, only highly rated corporations can sell it, and its yield exceeds T-bill yields to compensate for credit risk. Both are considered cash equivalents suitable for parking money with minimal price risk.

Memory hook:T-bills and commercial paper pay no coupon; the discount is the yield, and only T-bills are government-backed.

The Treasury issues three main shapes: bills, which mature in one year or less and sell at a discount; notes, which run two to ten years and pay semiannual interest; and bonds, which go out to thirty years with semiannual coupons. All are backed by the full faith and credit of the U.S. government. Treasury Inflation-Protected Securities work differently: the principal adjusts with the CPI, so when inflation rises, the principal increases and the semiannual coupon, paid on the adjusted principal, rises too. At maturity, the investor receives the adjusted principal or the original par, whichever is greater, providing deflation protection. The tradeoff is that the inflation adjustment is taxable income in the year it accrues even though no cash is received until maturity.

Memory hook:Bills are discount, notes and bonds pay coupons; TIPS inflate the principal, and the tax bill comes before the cash.

General obligation bonds are backed by the full taxing power of the municipality, so the key analysis is the issuer's overall wealth and tax base. Revenue bonds are backed only by the receipts of a specific project, such as tolls, water fees, or hospital income, so the key analysis is the project's viability. Revenue bonds are not a claim on taxpayers, which makes them riskier and typically higher yielding. On taxes, the general rule is that interest on municipal bonds is exempt from federal income tax, and usually exempt from state tax in the state of issuance. Capital gains on munis are taxable, however, and interest on private activity bonds can be subject to the alternative minimum tax, which is a critical point for higher-bracket clients.

Memory hook:GO bonds lean on taxpayers, revenue bonds lean on the project; muni interest is federally exempt but gains are not.

Corporate bonds are unsecured in most cases, relying on the issuer's creditworthiness, and pay taxable interest. Asset-backed securities package loans or receivables, such as mortgages or auto loans, into securities where investors receive payments from the underlying pool; the risk is that borrowers default or prepay faster than expected. Call features let the issuer redeem the bond before maturity, usually at a set call price, and issuers exercise that right when rates fall so they can refinance cheaply. That means callable bonds expose investors to reinvestment risk, and issuers compensate with a higher coupon. The decision rule: when rates drop, expect callable bonds to be called, cutting short the investor's yield, so yield to call, not yield to maturity, becomes the realistic measure.

Memory hook:Calls belong to the issuer; falling rates trigger calls, and yield to call becomes the real number.

Bond prices move inversely to interest rates: when market rates rise, existing bonds with lower fixed coupons become less attractive and their prices fall, and vice versa. Pricing relative to par follows the coupon: a bond prices at a discount when its coupon is below the market yield, at par when they are equal, and at a premium when the coupon is above market yields. The yield hierarchy for a bond bought at a discount is: yield to maturity exceeds current yield, which exceeds the coupon rate, because the discount accretes to the buyer as extra return. For a premium bond, the order reverses: coupon exceeds current yield exceeds yield to maturity, since the premium is gradually lost. Memorize both orderings rather than recalculating each time.

Memory hook:Rates up, prices down. Discount: YTM tops current tops coupon; premium flips the order.

Duration measures a bond's price sensitivity to interest rate changes, expressed in years. The working approximation: a bond's price will change roughly 1 percent for each 1 percent change in rates, multiplied by its duration. A bond with duration of 6 loses about 6 percent in price if rates rise 1 percent, and gains about 6 percent if rates fall 1 percent. Longer maturities and lower coupons mean higher duration, hence more price risk. Zero coupon bonds have the longest duration for a given maturity because all cash flow arrives at the end. Duration also marks the point where price risk and reinvestment risk roughly offset. For a rate-risk question, the decision rule is simple: compare durations, because the bigger duration takes the bigger price swing.

Memory hook:Duration times rate change equals price change; longer maturity and lower coupon mean longer duration.

Common stockholders own the residual claim: they get voting rights, typically one vote per share, plus preemptive rights to maintain their ownership percentage when new shares are issued, and unlimited upside if the company grows. But they are last in line for dividends and in liquidation. Preferred stockholders trade that growth for stability: they receive a fixed dividend that must be paid before common dividends, they rank above common in liquidation, and they generally have no voting rights. Preferred prices behave more like bonds, moving mainly with interest rates. Cumulative preferred adds a protection: missed dividends accumulate as arrears that must be paid before common holders receive anything. Convertible preferred adds the option to switch into common shares, giving some upside participation.

Memory hook:Common votes and grows; preferred gets paid first with no vote. Cumulative preferred banks its missed dividends.

American Depositary Receipts are receipts issued by U.S. banks representing shares of foreign stock held on deposit abroad. They trade in U.S. markets, in U.S. dollars, and their dividends are converted to dollars and paid by the bank, which makes foreign investing simpler for U.S. clients. The key point for analysis: ADRs still carry foreign exposure beyond the underlying stock's performance. Currency risk remains, because the dollar value of the foreign shares fluctuates with exchange rates, and political or country risk from the issuer's home nation persists. So an ADR in a French company exposes the investor to the company's business results plus euro-dollar exchange movement. ADRs are not the same as owning the foreign shares directly, but economically the exposure is similar.

Memory hook:ADRs trade in dollars on U.S. exchanges, but the foreign currency and country risk ride along.

Fundamental analysis studies the company itself: earnings, book value, cash flow, and management, to estimate intrinsic value. Technical analysis ignores the business and studies price and volume patterns, trends, and market psychology, assuming supply and demand leave footprints in the charts. Two fundamental models matter. The dividend discount model values a stock as the present value of all expected future dividends; it works best for stable dividend payers. Discounted cash flow values a stock as the present value of all expected future cash flows, whether or not they are paid out as dividends, which makes it more broadly usable. Both models share a rule: the higher the discount rate applied, the lower the computed value today.

Memory hook:Charts mean technical, statements mean fundamental; DDM needs dividends, DCF does not.

Mutual funds come in share classes that differ in how the sales charge is collected. Class A shares charge a front-end load, deducted from the initial investment, but carry lower annual expenses, and they often break the load down at volume discounts called breakpoints, which suit large investments. Class B shares have no front-end load but impose a contingent deferred sales charge that declines over a holding period, typically vanishing after several years, and they carry higher annual expenses; many B shares later convert to A shares. Class C shares charge a small or no upfront load but level higher annual fees indefinitely, often with a short back-end charge, making them suitable for shorter holding periods. The decision rule: longer horizons favor A, short horizons favor C, and B sits in between.

Memory hook:A pays up front and is cheapest long-term, B defers and converts, C charges yearly and suits short holds.

Open-end mutual funds transact directly with the fund at net asset value, calculated once daily after the close, and they stand ready to redeem shares and issue new ones, which keeps price equal to NAV. Closed-end funds issue a fixed number of shares once, then trade on exchanges like stocks throughout the day, so supply and demand can push the price to a premium or discount to NAV. ETFs also trade intraday at market prices, but a creation and redemption mechanism involving baskets of securities keeps their price close to NAV, and they are typically tax-efficient. Unit investment trusts hold a fixed, unmanaged portfolio that terminates at a set date. Private funds, including hedge funds, private equity, and venture capital, are limited to accredited investors and are illiquid with negotiated terms.

Memory hook:Open-end prices at NAV daily; closed-end and ETFs trade all day; only closed-ends drift far from NAV.

A REIT is a pooled investment that owns or finances real estate and passes rental or mortgage income to shareholders, which is why it trades like an equity but behaves like an income vehicle. Equity REITs own property, mortgage REITs lend against it, and hybrids do both. Traded REITs offer daily liquidity; non-traded REITs do not, and illiquidity is their headline risk. When comparing any pooled fund to a peer, the exam wants you to check whether the comparison is fair: same benchmark, same style, manager tenure long enough to matter, and whether the investment policy has drifted. A small-cap fund judged against the S&P 500 tells you nothing useful.

Memory hook:Compare apples to apples: same style, same benchmark, same liquidity.

An option gives the buyer a right, not an obligation: the buyer pays a premium for the choice to buy (call) or sell (put) at a strike price, while the seller takes on an obligation in exchange for keeping that premium. That premium splits into intrinsic value, the amount the option is in the money, and time value, which erodes to zero at expiration. A warrant works like a long-term call but is issued by the corporation itself, so exercise brings new shares and dilution. A futures contract obligates both parties: no premium changes hands, the price simply converges with the spot price by delivery, and gains or losses settle daily through marking to market.

Memory hook:Options are rights, futures are duties, warrants are corporate calls.

An annuity has two phases: accumulation, where money grows tax-deferred, and annuitization, where the insurer pays a stream the annuitant cannot outlive. A fixed annuity pays a guaranteed rate, so the insurer bears the investment risk. A variable annuity invests in subaccounts, so the owner bears the risk and the account can lose value. An indexed annuity credits returns tied to an index but caps the upside. On the life side, term is pure death protection with no cash value and the lowest premium. Whole life has level premiums and guaranteed cash value. Universal life adds flexible premiums. Variable life invests cash value in separate accounts, shifting investment risk to the policyowner.

Memory hook:Fixed protects the insurer's promise; variable shifts risk to the owner.

Leveraged ETFs use derivatives to deliver a multiple of an index's daily return, and inverse funds move opposite the index. The key word is daily: returns compound, so a 2x fund held over weeks will not track 2x the index's total return, and both products are designed for short holding periods. An ETN is an unsecured debt note from an issuer, so your real exposure is the issuer's credit, not a pool of assets. Structured products bundle a debt instrument with a derivative to offer customized payoffs, often with principal protection contingent on the issuer surviving. Digital assets, including cryptocurrencies, are defined by their distinction as currencies, assets, or securities, and they carry volatility, custody, and regulatory risks.

Memory hook:Leverage compounds daily; an ETN is only as good as its issuer.

Recommendations change with the client's legal form. A natural person or sole proprietorship is taxed on a personal return and can pursue any objective the profile supports. In a general partnership, every partner bears full personal liability, so capital preservation often matters more. Limited partnerships and LLCs shield passive investors, and LLCs offer passthrough taxation without the corporate formalities. C corporations pay entity-level tax, while S corporations pass income through to shareholders. Trusts are managed by a trustee for beneficiaries, and the trust document controls what is permissible, which can override a beneficiary's wishes. Charities and foundations manage endowments meant to last forever, so they emphasize income, liquidity for spending needs, and low volatility rather than maximum growth.

Memory hook:Read the legal wrapper first; the document dictates the suitability.

Risk tolerance is psychological: how much loss the client can stomach before panic selling. Risk capacity is financial: how much loss the balance sheet can absorb without derailing goals like retirement or a home purchase. They frequently disagree, and the rule is that the recommendation must respect the lower of the two. A wealthy client who is terrified of drawdowns has low tolerance despite high capacity; a modest-income client chasing aggressive returns has the opposite problem. Data gathering is how you find both: questionnaires and interviews reveal attitudes and experience, while the balance sheet, cash flow, existing investments, tax situation, and time horizon quantify capacity. Client identification documents the relationship from the start.

Memory hook:Tolerance is the stomach, capacity is the wallet; the weaker one wins.

A profile is incomplete without the nonfinancial layer: values such as environmental, social, and governance criteria or religious screens that exclude certain industries; the client's investing experience; life events like marriage, divorce, or inheritance; and life stage, which shifts objectives over time. Behavioral finance explains why clients act against their own interests. Loss aversion means losses hurt roughly twice as much as equivalent gains feel good, so clients hold losers too long. Recency bias assumes recent trends continue. Anchoring fixates on a purchase price. Overconfidence breeds excessive trading, confirmation bias filters out contrary facts, mental accounting treats money in separate buckets, and herd mentality chases whatever is popular. The adviser's job is to name the bias and keep the plan on track.

Memory hook:Behavioral biases are the client's emotional fingerprints; identify them by the action described.

CAPM prices risk mathematically: expected return = risk-free rate + beta × (market return − risk-free rate). Beta measures a security's sensitivity to market movement; a beta of 1 moves with the market, above 1 amplifies it, and below 1 dampens it. The term in parentheses is the market's excess return, so CAPM says you are compensated for systematic risk only, because unsystematic risk can be diversified away for free. The Security Market Line graphs this relationship, plotting expected return against beta. Any security plotting above the SML offers more return than its beta justifies, so it is undervalued. Alpha is the leftover: actual return minus the CAPM-expected return. Positive alpha means the manager beat the market on a risk-adjusted basis.

Memory hook:Above the line is a bargain; alpha is what the formula leaves behind.

Modern Portfolio Theory, the work of Harry Markowitz, says risk should be measured at the portfolio level, not security by security. Combining assets whose returns are not perfectly correlated lowers total portfolio risk without sacrificing expected return, because losses in one holding tend to be offset elsewhere. Diversification eliminates unsystematic risk; systematic risk remains no matter how many assets you add. The efficient frontier is the set of portfolios offering the highest expected return for each level of risk, so rational investors choose along it. The Efficient Market Hypothesis argues prices already reflect information: the weak form covers historical prices, so technical analysis cannot win; the semi-strong form covers all public information, so fundamental analysis cannot win; the strong form includes inside information.

Memory hook:Weak kills charting, semi-strong kills analysis, strong kills everything; diversify away the unsystematic.

Strategic asset allocation sets long-term target weights for stocks, bonds, and cash based on the client's goals, risk profile, and time horizon, then rebalances periodically to stay on plan. It is the policy backbone. Tactical asset allocation deliberately deviates from those targets when the manager believes a sector or asset class is mispriced, effectively a disciplined form of market timing. The style question is separate: passive management buys and holds a market index at low cost, accepting market returns, while active management trades to beat the market, charging more and often failing to do so consistently. Style labels also describe what a manager buys: growth stocks with fast earnings increases, value stocks that look cheap, income holdings that pay, or capital appreciation holdings that grow.

Memory hook:Strategic is the plan, tactical is the detour; passive rides, active steers.

Dollar-cost averaging invests a fixed dollar amount on a schedule, so the same dollars buy more shares when prices fall and fewer when prices rise, averaging the cost per share down over time. It does not guarantee profits, but it removes the pressure of timing the market. Sector rotation moves money into industries expected to perform well in the current phase of the business cycle, defensive sectors late in a cycle and cyclicals early in a recovery. Options serve as portfolio tools: a protective put insures a position against a decline, and a covered call generates income by selling upside. Leverage, whether through margin or borrowed funds, magnifies both gains and losses, and interest cost accrues regardless of results.

Memory hook:DCA buys more when it's cheap; a put insures, a call sells the upside.

Tax basis is what you really invested: purchase price plus commissions, adjusted for reinvested dividends and capital distributions, which is why forgetting reinvested dividends double-taxes part of the gain. Capital gain equals sale proceeds minus basis. The holding period decides the rate: more than one year earns long-term treatment at preferential capital gains rates, while one year or less is short-term and taxed as ordinary income. The clock starts the day after purchase and ends on the sale date. Qualified dividends on stock of qualified issuers are taxed at the long-term capital gains rates rather than ordinary rates, provided the shareholder meets the required holding period. Nonqualified dividends, like many distributions from REITs, do not get that break.

Memory hook:Basis includes reinvested dividends; one year and a day changes the rate.

The alternative minimum tax is a parallel calculation: certain preference items, such as interest on private activity municipal bonds, are added back, an exemption amount phases out at higher incomes, and the taxpayer owes the larger of the AMT result or the regular tax. It mainly hits higher earners with heavy deductions. The marginal bracket is the rate on the last dollar earned, not the rate applied to all income, so a client in a higher bracket benefits more from deductions today and should consider deferring income. IRMAA is the Medicare surcharge: when modified adjusted grossI income exceeds set thresholds in the look-back years, Medicare Part B and D premiums increase, and the way to manage it is controlling MAGI, since qualified Roth distributions do not count.

Memory hook:AMT is the higher of two taxes; IRMAA watches MAGI, and Roth stays invisible.

A C corporation pays tax at the entity level, and shareholders pay again on dividends, which is the double taxation that makes C corp earnings the most heavily taxed path. An S corporation elects passthrough treatment: income flows to shareholders' personal returns, avoiding entity-level tax, but eligibility limits apply, including a restricted shareholder count and a single class of stock. LLCs and partnerships also pass income through, with LLCs offering liability protection and flexible management. REITs avoid entity-level income tax by distributing substantially all income to shareholders, who pay the tax. MLPs pass income through too, but they issue K-1s and can generate unrelated business taxable income, which is why MLPs are generally unsuitable inside IRAs.

Memory hook:C is taxed twice, S passes through once, MLPs misbehave in IRAs.

A traditional IRA trades a possible tax deduction now for ordinary income tax on every withdrawal later, with growth tax-deferred along the way. A Roth IRA gives no deduction, but qualified withdrawals, including all earnings, are tax-free, and the account has no required minimum distributions during the owner's lifetime, so it can compound indefinitely and pass to heirs. The decision rule is bracket comparison: deduct in high-earning years, contribute to a Roth when the current bracket is low. Traditional IRA owners must begin RMDs at the statutory age, currently 73, and calculate each year's required withdrawal by dividing the prior year-end account value by the IRS life expectancy factor. Missing an RMD triggers a significant excise tax, reduced for timely correction.

Memory hook:Traditional defers the tax bill; Roth pays it upfront and never bills again.

A defined benefit plan promises a specific pension, computed from a formula like years of service times average salary, and the employer bears the funding and investment risk. A defined contribution plan promises contributions, not outcomes, so the employee bears the investment risk and the benefit is whatever the account grows to. A 403(b) serves employees of nonprofits and schools, typically through annuities or mutual fund custodial accounts. A 457 plan is for government employees, and its distinguishing feature is that distributions after separation carry no early withdrawal penalty. A SEP is employer-funded only, with higher contribution limits, making it attractive for self-employed owners. A SIMPLE IRA allows employee deferrals with employer matching but lower limits. A Solo 401(k) covers an owner plus a spouse, allowing both employee deferral and employer contribution.

Memory hook:DB promises the check, DC promises the deposit; 457 exits penalty-free.

ERISA imposes four core duties on plan fiduciaries: act solely in participants' interests with loyalty, act with prudence like a careful expert, diversify to minimize the risk of large losses, and follow the plan documents. Fiduciaries are personally liable for breaches, which is why investment committees document every decision, often through an investment policy statement. A QDIA, the qualified default investment alternative, is the pre-screened option, commonly a target-date or balanced fund, into which a participant's contributions land when the participant makes no election, protecting the fiduciary from liability for that default. Prohibited transactions ban self-dealing: no loans between the plan and a fiduciary, no buying or selling between them, no commissions or compensation from plan assets, and no using the plan to benefit the adviser.

Memory hook:Loyalty, prudence, diversification, plan documents; self-dealing is never permitted.

A 529 plan funds education with tax-free growth and tax-free qualified withdrawals, high contribution limits, donor control over the account, and often a state income tax deduction, with the beneficiary changeable within the family. A Coverdell ESA also covers K-12 expenses but carries a low annual contribution limit and an age cutoff. UTMA and UGMA custodial accounts are different in kind: the gift is irrevocable, the money belongs to the minor, the custodian manages it until the age of majority, and funds must be spent for the minor's benefit, not the parents' convenience. Because the assets are the child's, they weigh heavily in financial aid formulas. An HSA, available with a high-deductible health plan, offers the triple tax advantage: deductible contributions, tax-free growth, and tax-free qualified medical withdrawals, and the account is portable.

Memory hook:529 keeps control, UTMA gives it away, HSA wins the tax trifecta.

Ownership form determines who inherits without a will. Joint tenants with rights of survivorship requires equal shares, and the survivor takes all automatically. Tenants in common permits unequal shares, and each owner's share passes to their own heirs, with no survivorship. Tenancy by the entirety is survivorship for married couples only. Community property rules apply in certain states. Transfer-on-death and pay-on-death registrations pass securities or bank accounts directly to a named beneficiary, avoiding probate. Beneficiary designations on retirement accounts and life insurance override the will, and per stirpes means a deceased beneficiary's share flows down to that beneficiary's descendants by branch. On the transfer-tax side, gifts above the annual exclusion use the unified credit, which shelters a lifetime amount, and portability lets a surviving spouse claim the deceased spouse's unused estate exemption.

Memory hook:Survivorship skips the will; per stirpes keeps each branch's share in the branch.

A market order executes immediately at the best available price, guaranteeing execution but not price. A limit order guarantees price but not execution, so a buy limit only fills at the limit or lower. A stop order sits inactive until the market trades at the stop price, then becomes a market or limit order, typically protecting a long position on the downside. A short sale sells borrowed shares, betting on a decline, and the seller must eventually buy the shares back to return them, so the maximum gain is the sale price while the loss is theoretically unlimited. Margin extends credit to buy securities: the investor posts a percentage of the purchase, borrows the rest, pays interest, and faces a margin call if equity falls below the maintenance requirement.

Memory hook:Limit locks the price, stop waits for the trigger, shorts must buy back.

In an agency trade the firm acts as a matchmaker, executing for the client and charging a commission; in a principal trade the firm sells from or buys for its own inventory, and its compensation is a markup (when the client buys) or a markdown (when the client sells) built into the price. Markups must be fair and are measured against the prevailing market price. Best execution obligates the firm to use reasonable diligence so the client's total cost or proceeds are the most favorable reasonably available, which means payment for order flow is acceptable only if it does not degrade execution quality. Decision rule: ask who is on the other side of the trade — the market (agency) or the firm itself (principal).

Memory hook:Agency earns a commission; principal earns a markup — inventory in between means the firm is the counterparty.

Time-weighted return compounds subperiod returns while stripping out the effect of deposits and withdrawals, so it isolates the manager's decisions — which is why it is the industry standard for comparing managers against benchmarks. Dollar-weighted return is simply the IRR of the account's actual cash flows, so a client who added money right before a rally will show a higher dollar-weighted than time-weighted return, and the reverse holds after a drop. Decision rule: manager evaluation uses time-weighted; investor experience uses dollar-weighted. Benchmarks must match the portfolio's style and contents — comparing a growth fund to a Treasury bill index tells you nothing about skill.

Memory hook:Time-weighted tests the manager; dollar-weighted tests the investor's cash-flow timing.

An investment adviser is any person who, for compensation, advises others about securities, either directly or through publications or writings, as part of a regular business. Compensation means any economic benefit, not just advisory fees. Federal covered advisers register with the SEC and cannot be required to register in a state: advisers registered under the Investment Advisers Act, advisers to registered investment companies, and advisers with assets under management of $100 million or more (or who could not qualify for state registration). States retain antifraud authority over everyone, including federal covered advisers, so the exclusion limits registration, not regulation.

Memory hook:Advice plus compensation equals adviser; $100 million or more means the SEC's door, not the state's.

An IAR is a natural person who, for compensation, gives advice about securities, solicits advisory services, or supervises people who do. Registration is required in any state where the IAR has a place of business, even when working for a federal covered adviser. Exclusions include purely clerical or administrative personnel, and professionals such as attorneys, CPAs, and teachers whose advice is clearly incidental to their primary occupation and who receive no special compensation for it. Publishers of general-circulation publications are excluded at the firm level. Decision rule: look for compensation plus advice, solicitation, or supervision — any one of those three activities triggers registration.

Memory hook:Advice, solicit, or supervise — any one plus compensation makes an IAR.

A broker-dealer effects transactions in securities for the account of others or for its own account in the ordinary course of business. An agent is a natural person representing a broker-dealer or an issuer in effecting transactions. The dividing line with advisers is activity: effecting trades versus giving advice. A broker-dealer's incidental advice with no special compensation does not make it an adviser, but an adviser that charges commissions to execute the trades it recommends may need broker-dealer registration. Agents of issuers are often exempt when dealing in exempt securities or with institutional buyers. Watch for the hybrid: a firm can be both, but each activity triggers its own rules.

Memory hook:Dealers deal; advisers advise. Special compensation for advice flips a dealer into adviser territory.

A security is broadly defined under the Uniform Securities Act and includes stocks, bonds, investment contracts, and interests in almost any profit-seeking venture — the Howey test looks for an investment of money in a common enterprise with profits expected from the efforts of others. Exempt securities (not transactions) include US government and municipal debt, bank securities, and securities listed on national exchanges; these are exempt everywhere, from anyone, permanently. Exempt transactions, by contrast, depend on who is selling — the issuer or a non-issuer — and include isolated transactions, unsolicited non-issuer trades, and institutional dealings. Decision rule: classify the security first, then the transaction, then the seller.

Memory hook:Exempt security exempts the paper; exempt transaction exempts the deal — and often only for non-issuers.

An issuer is the person who creates or proposes to create the security — a corporation issuing its own shares, for example. Anyone representing that issuer in effecting securities transactions is an issuer agent and generally must register unless an exemption applies: selling exempt securities, dealing only with institutional buyers, or transactions not involving a public offering. Finders occupy a narrow lane: they may introduce parties to a transaction without registering, but only if they do not give advice, do not negotiate terms, do not handle funds or securities, and are not engaged on a continuing basis. Step outside those limits and the finder becomes an unregistered agent.

Memory hook:Finders find — they don't advise, negotiate, or hold. Cross a line, become an agent.

The state Administrator has broad powers: adopting rules, issuing subpoenas, taking sworn testimony, examining books and records, denying or revoking registrations, issuing cease-and-desist orders, and summarily suspending registrations in emergencies when the public interest requires. Administrative proceedings can lead to fines and registration actions. The limits matter just as much: the Administrator cannot require registration of federal covered advisers or their securities, cannot waive the antifraud provisions, cannot set fees above statutory maximums, and cannot grant exemptions the statute does not authorize. Antifraud authority extends to every person and every security, registered or not.

Memory hook:Administrator power is wide but walled: no federal covered registrations, no antifraud waivers, no fee hikes.

A purchaser who bought an unregistered or fraudulently sold security can sue for rescission — return of the security for the purchase price plus interest, less any income received — or for damages. Under the Uniform Securities Act, a civil suit must be brought within three years of the sale or two years after the violation was discovered, whichever comes first, and Administrator enforcement actions face a five-year limit. A rescission offer made before the purchaser sues, restoring the money plus interest less income, can cut off liability. Anyone who materially aided the violation can be sued jointly and severally, so do not assume only the seller is exposed.

Memory hook:Two, three, five: two from discovery, three from sale, five for the Administrator.

Advisers must keep books and records supporting their business — agreements, trade confirmations, communications, ledgers, client lists — generally for five years, with the first two years in an easily accessible place. Registration maintenance is ongoing: Form ADV amendments are filed promptly for material changes, and an annual updating amendment is due within 90 days of fiscal year end. IARs keep registrations current by updating their forms, disclosing reportable events, and meeting continuing education requirements under NASAA's model rule — twelve credits annually, at least six covering ethics and fraud. The Administrator can examine records at any reasonable time, so treat them as if an examiner will read them.

Memory hook:Five years on the shelf, first two within reach; ADV updates 90 days after fiscal year end.

Advisers must deliver disclosure documents so clients know who they are dealing with: Form ADV Part 2A, the brochure, delivered before or at the time of entering an advisory contract, and updated annually within 120 days of fiscal year end; Part 2B covers the individuals who actually give advice. Material changes require prompt delivery of an amended brochure. The flip side is the unlawful representation rule: no one may claim that state registration implies the Administrator's approval or recommendation of the adviser or its securities. Registration means disclosure, not endorsement — a point examiners love to test in both directions.

Memory hook:Registration means disclosure, never endorsement — claiming Administrator approval is always unlawful.

Performance fees tie the adviser's pay to account results, which creates an incentive to take outsized risks, so regulators restrict them: the client generally must be financially substantial — commonly $1.1 million under management or $2.2 million net worth excluding a primary residence — and the arrangement must be disclosed in writing. Soft dollars are commissions used to pay for research or brokerage services rather than cash; they are legal only if they provide benefit to the client, are disclosed, and relate to the client's investment needs. Soft dollars cannot buy the adviser's own office equipment or personal benefits.

Memory hook:Performance fees need a wealthy client; soft dollars must buy research that helps the client.

Custody means the adviser has physical possession of client funds or securities, or any arrangement giving it access to them — standing letters of authorization count. It triggers real obligations: notice to the regulator, segregation of client assets, sending quarterly statements identifying the adviser, and typically a surprise annual examination by an independent public accountant. Deducting the advisory fee directly is generally not custody as long as the adviser has no other custody rights. The policy logic is simple: whoever can move client money needs extra scrutiny, because that is where theft happens.

Memory hook:Access to client assets equals custody; fee deduction alone usually doesn't.

Discretion means the adviser chooses what to buy or sell, the amount, or whether to trade at all. Time and price alone — 'buy 500 XYZ at the market Tuesday' — is mere trading authorization, not discretion. Discretion exercised beyond a very short window (the rule of thumb is more than ten business days) requires written client authorization, and the adviser must accept responsibility for the suitability of every discretionary trade. The distinction matters because discretion creates control, and control is the foundation for churning claims. Decision rule: ask whether the adviser picked the security or the size — if yes, it is discretion.

Memory hook:Time and price are free; picking the security or size is discretion — write it down.

Advisers cannot borrow from or lend to clients, with narrow exceptions like borrowing from a financial institution or a client that is in the lending business. Sharing in a client's profits or losses is prohibited except in the adviser's own account, proportional to actual capital contributed, and with written client consent. Selling away means recommending or selling securities away from the firm's approved list without written consent — a classic IAR violation that often involves private placements. The common thread is self-dealing: any arrangement where the adviser's personal interest can conflict with the client's requires disclosure or is flatly barred.

Memory hook:No loans to or from clients; share profits only in your own account, pro rata, in writing.

Insider trading means buying or selling on material, nonpublic information — or tipping it for a benefit — and liability extends to tippees and misappropriators, not just corporate insiders. Market manipulation covers artificial schemes: wash trades to create volume, matched orders, painting the tape, spreading false rumors, and pegging prices. Churning — excessive trading relative to the client's objectives — is manipulation when the adviser controls the account. The unifying test is whether the price or volume reflects genuine supply and demand or a manufactured appearance. Advisers also owe clients confidentiality, so trading ahead of a client's order or using client information is a double violation.

Memory hook:Wash trades and matched orders fake activity; tips with benefits create tippee liability.

Investment advisers generally must use written contracts when compensation exceeds $500 over twelve months. The contract must state the services provided, the amount of fees, whether the adviser will have discretion, and the term of the agreement; it cannot be assigned without client consent. A copy must be delivered to the client within 48 hours of signing, or at signing if the client retains a five-business-day cancellation right. Contracts must also disclose any compensation the adviser receives from third parties for recommendations. The exam tests these as a checklist: look for the missing element in a fact pattern.

Memory hook:Over $500 a year means written contract; deliver within 48 hours or give five days to cancel.

Advertising rules for advisers focus on honesty and balance. Performance figures must be accompanied by the disclosure that past performance does not guarantee future results, hypothetical or model performance must state the assumptions behind it, and no adviser may guarantee returns or claim that registration implies endorsement. Testimonials are restricted: under NASAA's model rule, an adviser may use them only with disclosure of any compensation and material relationship behind the endorsement. Social media posts are treated as advertising or correspondence depending on content, and firms must archive them. An interactive reply to a prospect's question is correspondence, not advertising, but the recordkeeping duty applies either way.

Memory hook:Past performance needs a disclaimer; testimonials need a compensation disclosure; guarantees get nothing but trouble.

Advisers sit in the AML chain even though broker-dealers carry the heaviest obligations: know your customer, monitor for suspicious activity, and file a Suspicious Activity Report with FinCEN when a transaction appears designed to evade reporting requirements or lacks a lawful purpose. Red flags include structuring deposits to stay under reporting thresholds and reluctance to provide identification. Vulnerable adult exploitation rules let advisers hold disbursements and report suspected exploitation to state agencies and trusted contacts. Cybersecurity obligations include incident response plans, encryption, vendor oversight, and business continuity planning so client service survives a systems failure.

Memory hook:Suspicious activity means a SAR to FinCEN; structuring deposits is the telltale red flag.

Advisers are fiduciaries: they must place client interests first, act with care and loyalty, and disclose or eliminate conflicts. Churning is the fiduciary breach of excessive trading — it is judged against the client's objectives and the account's activity, and it requires the adviser to exercise control, which is why discretion matters. Excessive trading in a non-discretionary account is harder to prove but still actionable if the adviser effectively controls the client. Succession planning is part of business continuity: the adviser needs a plan so clients are served if the principal dies or becomes disabled, including data backup and disaster recovery.

Memory hook:Fiduciary first, client always; churning needs control plus excess; succession keeps service alive.