Series 6, 7, 65, 66          



Making suitable recommendations for a prospective new rep is challenging to say the least so how, then, do we “systemize” this process for passing your exam? One of the most common comments I receive from test takers is the frequency of questions in which they are asked to make suitable recommendations on their exams. This type of question has always been a part of both FINRA (Series 6, 7) and NASAA (Series 65, 66) exams. However, this type of question has become more frequent in recent years.

Several years ago, FINRA reformatted the Series 6 and Series 7 exams to include more suitability questions. This seems reasonable given the fact it is one of the primary function of a registered rep. Why it took so long to concentrate on this aspect is beyond me.

I often ask this question in my classes –  “which is the most important information in making a suitable recommendation?” A question that actually shows up on the Series 65 and Series 66 for many years. If you had to choose from the following, which would you choose? Age, risk, investment objective or annual salary? For those of us with experience in the industry, we know ALL of these are necessary when opening an account.

However, ultimately, what would a FINRA regulator say? Is it age? Certainly, we can make generalizations about age – young client vs. older client. Retired vs. not retired. What about risk? These days, most firms require a risk profile to be completed for all clients. But ultimately, doesn’t it really come down to objective? I believe FINRA would like us to find a suitable investment based upon our customers stated objective with their risk profile in mind.

So how do we “systemize” this for test taking purposes? Always start with the stated objective first and then we can adjust based on the risk profile. Also, there are certain investments we can generally apply to certain objectives. For example, an objective of growth/capital appreciation would most likely be interested in domestic or international common stock. Whether you would recommend large cap. or small cap. would then depend upon the risk profile. I have put these generalities as follows:  

The above generalities assume all other things being equal. In other words, these fit when there is no other specific or special situations. I have made note of some special situations that have shown up on the test from time to time. The zero coupon bond for college savings is an oldie but a goody. I can’t remember the Series 7 test NOT having that question show up.

Lastly, it is also important to know how these objectives are reflected in mutual fund names. I have listed a few below:

Fidelity Aggressive Growth Fund (small cap – higher risk)

American Biotechnology Fund (sector fund – high risk)

Columbia Equity Income Fund (Income from stocks, i.e. preferred stock, Blue Chips – moderate investors)

Rainier Tax Free Income Fund (Municipal Bonds – high tax bracket)

Vanguard Overseas Opportunity Fund (International stock fund – diversity of U.S. markets)

Janus Balance Fund (stocks and bonds – moderate investors)

Blackrock Asset Allocation Fund (maximum diversity – several different asset classes)

Empire Intermediate-term Income Fund (Corporate Bond Fund – maximize income)

Willamette Cash Reserve Fund (money market – liquidity w/ income)

Vanguard Intermediate-term Government Reserve Fund (Gov’t. bonds – safety and capital preservation w/ income)