How to ace the grueling Series 65 exam and keep your wits and your nerves intact in the process

Brooke’s Note: Many RIAs blanch at the thought of the day when FINRA becomes the regulator of their business. The thinking goes that it’s just a big, heavy-handed, soulless cop. Such a cement barrier tight along the roadway of rules is enough to create anguish in the cleanest-nosed advisor. But it turns out that FINRA does get one shot at many RIAs, would-be scofflaws in its estimation, as it throws down a hairy test where no partial credit is granted for wrong answers. This article makes sense of that potentially intimidating challenge, the Series 65 exam, and makes you realize it’s very doable. Just don’t underestimate the challenge at hand.

There are many chores associated with being an RIA that have nothing to do with advising clients. To be an RIA, you must constantly stay on top of all regulatory registration requirements, or you may lose your license. However, before you need to deal with ongoing certification requirements, you need to undergo an important examination.

To become an investment advisor representative, you will most likely need to take the Series 65 exam, also known as the Uniform Investment Adviser Law Examination. Tests are not always the best and truest measure of an individual’s knowledge, but, in general, they do separate the wheat from the chaff, gauging how well individuals understand a topic.

The Series 65 exam covers a lot of information. There are good reasons it has a bad reputation as a tough exam. If you have a basic understanding of finance, economics and investing you will have a huge head start, but various laws and regulations are also covered on the exam, making studying much more difficult for some. How many people pass the test at any given time is hard to pin down since it is administered many times in many places, and people can retake the test after failing it. Many underestimate the exam and fail it the first time around. See: 11 steps to becoming an RIA without upsetting Merrill Lynch, the SEC or your clients.

FINRA-administered

The Series 65 exam is administered by the Financial Industry Regulatory Authority. FINRA is not a government agency. Rather, it is a self-regulatory association that polices the broker-dealer investment industry by drafting and enforcing industry rules. FINRA also tests individuals to assess their qualifications to work with investments, including RIAs. FINRA administers close to 100 different exams. See: Avoiding FINRA oversight may depend on talking sense to an options-trading House Republican.

It costs $155 to sign up for the series 65 exam. A test candidate must submit a Form U-10 electronic application with the fee, or if the candidate is registered with a broker-dealer, the member firm must submit either a Form U4 electronic submission or a Form U-10 electronic application. After signing up, you must take the exam within 120 days. FINRA provides a listing of test center locations organized by state. See: RIAs switching to state registration may be examined by a second regulator, too.

Do you need to take it?

Individuals with certain professional designations may apply for a waiver of the Series 65 requirement. The Form U4 electronic submission form includes a box to indicate the certification you possess, which will be verified with the certifying organization. Also, since states vary in their licensing requirements, check what you need prior to signing up for anything.

Not all states license investment adviser representatives, but most of those that do require that the individual pass the Series 65 exam or an equivalent. Individual investment adviser representatives generally must be registered in states where they have a place of business. Some jurisdictions base registration on the number of clients. This applies to both state and SEC-registered advisers. See: An advisor fee bill hits Congress again, this time gaining qualified support from RIA groups.

Beat the stress

A study guide for the Uniform
Investment Adviser Law Examination.

Accept the fact that it is natural to feel some stress about taking an important professional exam. Then, put that stress to work for you, managing it to give you the focus you need to pass the exam. While preparing for the exam, take care for yourself:

• Do some physical exercise
• Eat foods that are good for you and that promote concentration
• Allow yourself some downtime for doing things you really love and that are NOT connected to the Series 65 exam
• Talk to colleagues also going through the testing process (but do NOT compare notes about how far along you are in your studies)
• Make sure you sleep — it sounds like a no-brainer, but pulling a few all-nighters right before taking the Series 65 exam is not advisable See: 5 ways for stressed-out advisors to build a more efficient practice.

Aiming for 80%

Many of the Series 65 exam questions are presented in a manner requiring insight and thought rather than responses based on memorized facts. Most questions are weighted in two ways, content and level of difficulty. Everyone wants to know how much they need to study to pass the 65, but how much study time is required is not really quantifiable.

That’s because each person learns differently; some are more easily distracted than others. Also, any group of people will define “studying” in many different ways. You should plan on spending approximately 24 to 30 hours in study preparation and approximately 16 hours on a practice final exam, but a lot depends upon what other exams you have already passed and your own style of studying.

In terms of any tricks for passing the 65, there are some strategies, but most come down to carefully reading the question (e.g., “Which of the following is not…” is looking for the wrong answer, etc.) The overwhelming guidance on how to pass the 65 is to STUDY.

• The Series 65 is a closed book test. You cannot bring any personal items into the test room. A dry erase board, markers and a calculator are supplied for your use, so do not rely on accessing any notes and such during the exam.

• Use a Series 65 study guide to prepare. There are numerous options available, but consider using one such as Robert Walker’s “Pass the 65” program, which dissects the test into manageable and understandable concepts. This guide was authored by a writer and professional trainer who specializes in financial testing guides.

• When using the study guide, take notes. Highlight important things. Use post-it notes to mark areas you want to re-read. Assess your knowledge of each area before going on to the next, reviewing topics you are weak in.

• Pay attention to any test taking techniques set forth in your study guide.

• Take sample tests, which are included in most study guides. A good rule of thumb is once you are consistently achieving a score of 80% or higher on the practice quizzes, you are ready for the test.

• Make flashcards. Keep them with you all the time and quiz yourself when you have a few spare minutes.

• Know how to get to the test site and print out your directions a few days ahead of time so you do not get lost.

Areas to bone up on

Before taking the exam at the test center, you are given a computer tutorial to get you familiar with how the computer-based test taking system functions, which FINRA promises is “user-friendly.”

The exam has 140 questions. However, only 130 of the questions are used to factor your grade. The other 10 questions are “test” test questions, and are sprinkled throughout the exam. The examinations tend to start off easy, get harder towards the middle, and ease off again at the end. See: Most RIAs prefer to pay money for SEC exams now than pay in blood later under an SRO.

The Series 65 Exam Specifications and Outline sets forth the topics covered in the exam:

o Economic Factors and Business Information — 19 test questions
o Basic economic concepts
o Financial reporting
o Quantitative methods
o Types of risk
o Investment Vehicle Characteristics and valuation methods — 31 test questions
o Cash and cash equivalents
o Fixed income securities
o Equity securities
o Pooled investments
o Derivative securities
o Alternative investments
o Insurance based products
o Client Investment Recommendations and Strategies — 40 test questions
o Client profile
o Capital market theory
o Portfolio management
o Tax considerations
o Retirement plans, ERISA and special accounts
o Trading securities
o Performance measures
o Laws, Regulations, Guidelines and Prohibition on Unethical Practices — 40 test questions
o State and Federal Securities regulations
o Fiduciary obligations and ethics

Taking the test

All tests are given at a Prometric test center around the country via computer. The candidate will need one form of valid, government-issued ID containing both a photo and signature. Your name on this ID must be the exact same name your examination is scheduled under. All personal items must be locked in a locker for test security purposes so please limit what you bring to the testing center.

For the final exam, they will sit in a room and take the test under supervision on a provided computer. Out of the 130 questions that count in factoring your results, at least 94 of your answers must be correct. This means the passing grade is about 72%.

You are allowed three hours (or 180 minutes) to complete the exam. Once you complete the test, you will receive your results immediately.

If you fail the exam the first time, do not expect to see the exact same questions when you retake it. FINRA uses an “on the fly” system to present the requisite number of exam questions from a large pool of possible ones. See: RIAs switching to state registration may be examined by a second regulator, too.

What if you don’t pass?

It is reasonably easy to retake the exam if you do not pass it. However, you must again pay the registration fees, and cool your heels for a bit (use the time to study more!). Chances are, if you continue to study, you will pass the exam the next time. In addition to still complying with the test taking window of 120 days after registration, there are other regulations on retaking the test:

• You must wait at least 30 before scheduling a retake of the exam.
• If you do not pass on your second attempt, you must wait another 30 days before signing up for a third time.
• If you do not pass on the third try, you must wait 180 days before scheduling any and all subsequent attempts at the test.

The good news is that if you do not pass the 65 exam, you receive a report showing your performance in each subject, which will greatly assist you in passing the 65 the next time you sit for the exam. By using the information given you can determine what areas you are strong in and what areas need more of your attention.

Oh, and the key to acing the test? Study.

Sheri Mushel is the president of RIA Registrar, LLC. Sheri served in numerous executive roles over the years, such as Chief Financial Officer, Director of Finance and Operations, Human Resources, and Sales Manager. Sheri holds a degree in Business Administration, Industrial Relations and Economics. She is also a registered notary.