TheorySeries 6
Practice Test
Study for the FINRA Series 6 exam: original questions on mutual funds, variable annuities, securities markets, retirement accounts, regulations and taxation.
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Series 6 exam — full Q&A walkthrough
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30 free Series 6 questions
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Series 6 (Investment Products)
An investor purchases $45,000 of Class A shares in a mutual fund. The fund's breakpoint schedule offers a reduced sales load at $50,000. The investor signs a letter of intent (LOI) to invest an additional $10,000 within 13 months. Which of the following BEST describes the immediate effect of the LOI?
Correct — C. A letter of intent allows investors to receive the breakpoint discount immediately on current purchases, with the understanding they intend to reach the qualifying amount within 13 months; shares are escrowed as collateral but the reduced load applies upfront. -
Series 6 (Investment Products)
A mutual fund's portfolio has securities with a total market value of $120 million. The fund has liabilities of $5 million, and 10 million shares are outstanding. An investor redeems 500 shares at 4:01 PM Eastern Time on a Tuesday. At which price will the redemption be processed?
Correct — C. Under forward pricing rules (SEC Rule 22c-1), any order received after the 4:00 PM ET cutoff must be executed at the NEXT computed NAV — meaning Wednesday's 4:00 PM calculation — not Tuesday's closing price. -
Series 6 (Investment Products)
A customer holds Class B mutual fund shares and has been told her shares will 'convert' after eight years. What is the PRIMARY benefit of this conversion feature?
Correct — A. Class B shares typically convert to Class A shares after a set holding period, after which the higher 12b-1 fee assessed on Class B shares is replaced by the lower Class A 12b-1 fee, reducing ongoing fund expenses for long-term holders. -
Series 6 (Investment Products)
Under FINRA rules, which of the following correctly describes how Rights of Accumulation (ROA) differ from a Letter of Intent (LOI) when qualifying for mutual fund breakpoints?
Correct — A. Rights of Accumulation allow investors to aggregate prior holdings plus the current purchase to qualify for a breakpoint; a Letter of Intent projects future intended purchases to qualify immediately for a reduced load, making them complementary but distinct mechanisms. -
Series 6 (Investment Products)
A Unit Investment Trust (UIT) differs from an open-end mutual fund primarily because a UIT:
Correct — D. A UIT is organized with a fixed portfolio of securities and a defined termination date; it does not continuously offer new shares and is not actively managed, distinguishing it from open-end mutual funds. -
Series 6 (Investment Products)
An investor is comparing Class A and Class C mutual fund shares for a projected 18-month holding period with a $20,000 investment. Which statement MOST accurately describes Class C shares for short-term investors?
Correct — C. Class C shares carry no front-end load and usually a small or no back-end load after one year, but their higher 12b-1 fees make them costlier than Class A for long-term holders; for an 18-month horizon, the absence of an upfront charge may yield lower total costs. -
Series 6 (Investment Products)
A mutual fund has a maximum front-end sales load of 8.5%. To be permitted to charge this maximum rate under FINRA rules, the fund MUST offer which of the following?
Correct — A. FINRA rules allow the 8.5% maximum front-end load only when the fund offers quantity discounts (breakpoints), rights of accumulation, and the right to reinvest dividends at NAV without an additional sales charge. -
Series 6 (Investment Products)
A closed-end fund with a NAV of $18.00 per share is trading on the NYSE at $15.75. An investor who purchases shares in the secondary market pays:
Correct — D. Closed-end fund shares trade on exchanges at market-determined prices that can be above (premium) or below (discount) NAV; in this case $15.75 is approximately 12.5% below the $18.00 NAV, and no additional sales load is charged for secondary-market purchases. -
Series 6 (Investment Products)
Which of the following BEST describes the 'public offering price' (POP) of a Class A mutual fund share?
Correct — A. The public offering price of a Class A open-end mutual fund share equals the NAV plus any front-end sales load; open-end funds do not trade on exchanges, so there is no market price distinct from the fund's own calculated POP. -
Series 6 (Investment Products)
An investor submits a $9,500 purchase order for a mutual fund that has a breakpoint at $10,000. The registered representative does not mention the breakpoint. Under FINRA rules, this situation MOST likely constitutes:
Correct — A. FINRA rules prohibit 'breakpoint selling' — structuring purchases just below a breakpoint threshold to earn a higher commission — and require representatives to inform customers of available breakpoints regardless of who initiates the transaction amount. -
Series 6 (Investment Products)
A UIT sponsor is required to maintain a secondary market for UIT units primarily to ensure that:
Correct — D. Because UITs do not continuously redeem units like open-end funds, sponsors are expected to maintain a secondary market so investors are not locked in and can exit their position prior to the trust's stated maturity or termination. -
Series 6 (Investment Products)
Under the Investment Company Act of 1940, an open-end investment company is prohibited from doing which of the following?
Correct — C. The Investment Company Act of 1940 prohibits open-end investment companies from issuing senior securities (debt or preferred equity), a restriction that distinguishes them structurally from closed-end funds, which may use leverage through bond issuance. -
Series 6 (Investment Products)
An investor in a mutual fund reinvests her capital gains distribution back into the fund. Which of the following statements about the tax treatment is CORRECT?
Correct — B. Mutual fund capital gains distributions are taxable to shareholders in the year distributed regardless of whether they are taken in cash or reinvested; the reinvested amount establishes a new cost basis for the additional shares purchased. -
Series 6 (Investment Products)
Which of the following entities is MOST directly responsible for calculating the daily NAV of an open-end mutual fund?
Correct — B. The fund's custodian (holding securities) and transfer agent (tracking shares outstanding) work under the board of directors' oversight to value portfolio holdings and compute NAV at least once each business day, typically at 4:00 PM ET. -
Series 6 (Investment Products)
A fund family offers a 'combination privilege' to investors. An investor holds $30,000 in Fund A and wants to buy $15,000 of Fund B within the same family. The $50,000 breakpoint for a reduced load applies at the family level. Which outcome is MOST accurate?
Correct — A. A combination privilege (also called a family of funds privilege) allows investors to aggregate holdings across multiple funds within the same fund family to qualify for breakpoint discounts, recognizing total dollars committed to the sponsor. -
Series 6 (Investment Products)
A closed-end fund conducts its initial public offering, raising capital by selling a fixed number of shares. After the IPO, an investor who wants to buy additional shares of this fund MUST:
Correct — A. After its IPO, a closed-end fund does not continuously issue new shares; investors must buy and sell existing shares on a stock exchange or in the over-the-counter market at market-determined prices, just like any publicly traded stock. -
Series 6 (Investment Products)
A 58-year-old client holds a variable annuity with a 7-year surrender charge schedule and is now in year 4. She recently lost her job and wants to make a full withdrawal. Which of the following BEST describes the tax and cost consequences she will face?
Correct — D. Withdrawals from a non-qualified variable annuity before age 59½ are subject to ordinary income tax on the earnings (LIFO treatment), a 10% IRS early withdrawal penalty, and any applicable contractual surrender charge imposed by the insurance company. -
Series 6 (Investment Products)
During the accumulation phase of a variable annuity, the owner's account is credited with accumulation units. When the owner annuitizes, accumulation units are converted to annuity units. Which statement accurately describes what happens to the NUMBER of annuity units after annuitization begins?
Correct — D. After annuitization, the number of annuity units is fixed; only the dollar value per unit varies with subaccount investment performance relative to the assumed interest rate (AIR), causing payment amounts to fluctuate up or down each period. -
Series 6 (Investment Products)
A variable life insurance policy's separate account has underperformed for three consecutive years, reducing the policy's cash value significantly. The policyholder is concerned about losing coverage entirely. Which feature of variable life insurance MOST directly protects the policyholder from having the policy lapse due to poor investment performance?
Correct — D. Variable life insurance provides a guaranteed minimum death benefit equal to the original face amount regardless of subaccount performance, ensuring the policy does not lapse solely because of poor investment returns. -
Series 6 (Investment Products)
A registered representative recommends a variable annuity inside a Traditional IRA. A compliance officer flags this as potentially unsuitable. Which argument MOST compellingly supports the compliance officer's concern?
Correct — B. Placing a variable annuity inside a tax-deferred account like an IRA creates 'tax deferral on tax deferral,' meaning the investor pays insurance and mortality charges without receiving additional tax benefit, which is a core suitability concern under Regulation Best Interest. -
Series 6 (Investment Products)
Which regulatory body has PRIMARY jurisdiction over the separate account of a variable annuity offered to the public?
Correct — A. The separate account of a variable annuity is registered as an investment company under the Investment Company Act of 1940, placing it under SEC jurisdiction, while the insurance wrapper itself remains subject to state insurance regulation. -
Series 6 (Investment Products)
A client purchased a non-qualified variable annuity 10 years ago for $50,000. The account has grown to $90,000. He withdraws $15,000. Under LIFO tax treatment, how much of the $15,000 withdrawal is subject to ordinary income tax?
Correct — B. Non-qualified annuity withdrawals follow last-in, first-out (LIFO) treatment for tax purposes, meaning earnings are considered withdrawn before principal; since the $40,000 gain exceeds the $15,000 withdrawal, the entire $15,000 is taxable as ordinary income. -
Series 6 (Investment Products)
An investor compares a variable annuity with a 1.40% annual mortality and expense (M&E) risk charge to a no-load index mutual fund with a 0.05% expense ratio. The variable annuity offers a guaranteed minimum income benefit (GMIB) rider for an additional 0.60% annually. Which statement BEST reflects proper suitability analysis under Regulation Best Interest?
Correct — B. Regulation Best Interest requires a holistic cost-benefit analysis specific to the customer's profile; the higher cost of the variable annuity may or may not be justified depending on whether the GMIB and tax-deferral features provide sufficient value for that particular client. -
Series 6 (Investment Products)
Which of the following statements correctly describes the difference between variable annuities and variable life insurance with respect to the death benefit?
Correct — B. Variable life insurance guarantees a minimum death benefit (face amount), while variable annuity death benefits are typically the greater of the current account value or a return-of-premium floor, reflecting the different guarantees embedded in each product. -
Series 6 (Investment Products)
A variable annuity contract owner wants to transfer funds from a bond subaccount to an equity subaccount within the same annuity contract. Which of the following BEST describes the tax treatment of this transaction?
Correct — C. Transfers between subaccounts within a single variable annuity contract are not taxable events; the tax-deferred status of the annuity wrapper means no tax is incurred until actual distributions are taken from the contract. -
Series 6 (Investment Products)
A 72-year-old retiree with moderate risk tolerance, a pension covering living expenses, and a desire to leave assets to her grandchildren asks about a variable annuity with a guaranteed minimum withdrawal benefit (GMWB) rider. Her representative recommends it primarily for the death benefit pass-through feature. Under Reg BI, which consideration is MOST relevant to evaluating this recommendation?
Correct — A. Reg BI's care obligation requires the representative to assess liquidity needs, costs, and whether the specific benefits sought (estate planning/death benefit) genuinely serve the client's interests relative to lower-cost alternatives, especially given the client's age and the long surrender period. -
Series 6 (Investment Products)
The assumed interest rate (AIR) in a variable annuity serves as a benchmark during the annuity payout phase. If in a given month the actual subaccount performance EQUALS the AIR, what happens to the annuity payment compared to the previous month?
Correct — D. When actual investment performance exactly equals the AIR, annuity payments remain unchanged from the prior period; payments rise only when performance exceeds the AIR and fall when performance is below it. -
Series 6 (Investment Products)
Which of the following is a TRUE statement about the accumulation phase of a variable annuity?
Correct — A. During the accumulation phase the contract owner assumes full investment risk; the number of accumulation units stays constant with each premium payment while the unit value rises or falls based on the performance of the chosen subaccounts. -
Series 6 (Investment Products)
A registered representative's client owns a variable annuity purchased 18 months ago. The client wants to do a 1035 exchange into a new variable annuity from a different carrier that has a lower M&E charge. The new contract resets the surrender charge schedule to 7 years. The client is 55 years old. Which of the following is the MOST critical disclosure the representative must make?
Correct — A. FINRA rules on variable annuity exchanges (per FINRA Rule 2330) require disclosure of the costs and consequences of the new contract including the reset surrender schedule, and the representative must demonstrate that the exchange is in the client's best interest, not merely advantageous to the rep. -
Series 6 (Investment Products)
Variable universal life (VUL) insurance differs from traditional variable life insurance primarily in which way?
Correct — A. Variable universal life combines the investment flexibility of variable life (subaccount allocation) with the premium and death benefit flexibility of universal life, allowing adjustable premiums and death benefit amounts, whereas traditional variable life requires fixed scheduled premiums.
Series 6 sample questions
Tap any question below to reveal the answer and a plain-English explanation.
Series 6 (Investment Products) A client in the 37% federal income tax bracket holds a variable annuity with $200,000 in gains. She dies and names her adult son as beneficiary. The son elects a lump-sum distribution. Which of the following BEST describes the federal income tax treatment the son will face?
A. The son receives a full step-up in basis to date-of-death value, resulting in no taxable gain
B. The gains are subject to capital gains tax rates because the holding period exceeds one year
C. The $200,000 in gains is taxable to the son as ordinary income in the year received, with no step-up in cost basis ✓
D. The son owes no income tax because inherited annuities qualify for the estate tax exclusion
Correct — C. Inherited non-qualified annuities do NOT receive a step-up in cost basis at death; the accumulated earnings are fully taxable as ordinary income to the beneficiary when distributed, unlike inherited securities which do receive a basis step-up.
Real Exam Practice Which SEC rule governs record-keeping by broker-dealers?
A. Rule 17a-3 ✓
B. Rule 15c2-12
C. Rule 156
D. Rule 482
Correct — A. Rule 17a-3 sets the minimum record-keeping requirements for broker-dealers registered with the SEC.
Series 6 (Investment Products) A prospective client says he wants a product that provides market participation, tax deferral, and a death benefit, but he is very concerned about not being able to access his money for emergencies. Which feature of a variable annuity is MOST directly relevant to addressing his liquidity concern before recommending the product?
A. The mortality and expense risk charge, which reduces annual returns but does not restrict access to funds
B. The assumed interest rate, which determines whether annuity payments rise or fall after annuitization
C. The free-look period, which provides a 10-day window to return the contract penalty-free after purchase
D. The surrender charge schedule, which typically imposes declining charges for 5–10 years and may significantly penalize early full withdrawals ✓
Correct — D. Surrender charges directly affect liquidity by imposing a penalty on withdrawals made during the surrender period, which can last up to 10 years; for a client who prioritizes access to funds in emergencies, this is the most material suitability factor to disclose and evaluate.
Real Exam Practice Which communication is NOT considered a prospectus under SEC Rule 134?
A. Variable annuity illustration
B. Performance advertisement
C. Sales brochure
D. Tombstone advertisement ✓
Correct — D. SEC Rule 134 explicitly excludes tombstone advertisements from the definition of a prospectus.
Series 6 (Investment Products) A broker-dealer sells newly issued municipal bonds directly from the issuer to institutional investors without filing a registration statement with the SEC. Which provision most directly authorizes this transaction to proceed without SEC registration?
A. The Securities Act of 1933 exemption for securities issued by a political subdivision of a state ✓
B. The Investment Company Act of 1940, which governs only corporate securities
C. The Securities Exchange Act of 1934, Section 12 exemption for government issuers
D. FINRA Rule 5130, which exempts municipal offerings from prospectus delivery
Correct — A. The Securities Act of 1933 explicitly exempts securities issued by any state or political subdivision thereof from the Act's registration requirements, so municipal bonds may be sold without SEC registration or a statutory prospectus.
Real Exam Practice When must a final prospectus generally be delivered to a customer?
A. At the time of recommendation
B. Before or at confirmation of sale ✓
C. Within 30 days after settlement
D. Only upon customer request
Correct — B. Under SEC rules, the final prospectus must be delivered no later than at the confirmation of sale (forward pricing rule).
Series 6 (Investment Products) An investor purchases shares in a company through a secondary market transaction on a national exchange. Which statement BEST describes the regulatory consequence of this purchase compared to an equivalent primary market purchase?
A. FINRA must approve the transaction price before settlement occurs
B. The Exchange Act of 1934 governs the transaction, and no proceeds flow to the issuing company ✓
C. The Securities Act of 1933 still requires a current prospectus to be delivered because registered securities are always covered
D. The SEC must re-review the registration statement each time the stock changes hands
Correct — B. Secondary market transactions are governed by the Securities Exchange Act of 1934; the sale occurs between investors rather than from the issuer, so the issuer receives no proceeds and no new 1933 Act registration is triggered.
Real Exam Practice Who is responsible for ensuring compliance of advertising materials?
A. The issuer
B. FINRA
C. The registered representative
D. A registered principal ✓
Correct — D. A registered principal must review and approve all advertising and sales literature before use.
About the Series 6 test
Study for the FINRA Series 6 (Investment Company and Variable Contracts Products Representative) exam with original practice questions written for this app from the publicly available FINRA Series 6 content outline. Every question has a clear explanation.
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