SERIES-6 Sample Questions & Answers

A Joint Tenants with Rights of Survivorship (JTWROS) account is designed so that when one owner dies, their share of the account automatically passes to the surviving owner(s), avoiding the time-consuming and often costly probate process. Tenants in Common (TIC) allows each owner's share to pass to their estate or designated heirs. A TOD registration applies to individual accounts, not joint ones. A trust account is a separate legal entity.

The Established Business Relationship (EBR) exemption to the Do-Not-Call rules applies at the firm level, not the individual representative level. If a consumer has a transaction or account with the firm within the last 18 months, any representative from that firm may call them, even if their number is on the National Do-Not-Call Registry.

FINRA rules require that a firm must send a copy of the new account record or the information it contains to the customer within 30 days of the account being opened. This gives the customer an opportunity to verify the accuracy of the information and request any necessary corrections.

In a variable life insurance policy, the cash value is invested in sub-accounts within a separate account, and its performance is not guaranteed. The policyholder bears the investment risk. A decline in cash value, despite premium payments, is most likely due to poor performance of these underlying investments, after mortality and expense charges have been deducted.

A variable annuity with an aggressive, sector-focused sub-account (like technology) is generally unsuitable for a conservative client whose primary goal is capital preservation. The investment risk of the sub-account is high, and the complexity and potential costs (surrender charges, fees) of the variable annuity may not align with the client's profile. Money market funds, government bond funds, and UITs with investment-grade bonds are all more consistent with a conservative, capital preservation objective.

When a client's investment is close to a breakpoint, the representative has an obligation to inform them of methods to reach it, such as a Letter of Intent (LOI). An LOI allows the client to receive the lower sales charge immediately by committing to invest the additional funds (in this case, $2,000) over a period, typically 13 months. Failing to discuss this could lead to a breakpoint sale violation. The other options are general investment concepts but not the most critical, immediate issue.

529 plans have a special rule that allows a contributor to make a lump-sum contribution of up to five times the annual gift tax exclusion amount and treat it as if it were made over a five-year period. With an annual exclusion of $18,000, an individual can contribute up to $90,000 ($18,000 x 5) at one time without triggering gift tax consequences, provided no other gifts are made to that beneficiary during the five-year period. A married couple could jointly contribute $180,000.

Withdrawals from a non-qualified variable annuity are taxed on a Last-In, First-Out (LIFO) basis. This means that the tax-deferred earnings are considered to be withdrawn first and are subject to ordinary income tax. Once all earnings have been withdrawn, the remaining withdrawals are considered a return of principal and are not taxed. Additionally, if the owner is under age 59 1/2, the taxable portion may also be subject to a 10% penalty.

A VUL policy is suitable for this client because it directly addresses his multiple objectives: a need for a death benefit, a desire for high growth potential linked to market performance (aligning with his high-risk tolerance), and an appreciation for tax-deferred growth. The flexible premium feature is also beneficial for a business owner with potentially variable income. VULs do not offer guaranteed returns, and while policy loans are a feature, they are not the primary reason for suitability in this case. VULs are not short-term investments.