Free Series 65 Exam Practice Test

Sample Series 65 practice questions

Try a few representative questions below. Each includes the correct answer and a short explanation — the same style you'll see in the full practice test.

1. Question 1Variable Annuities

   An investment advisor representative (IAR) is advising a client on the purchase of a variable annuity. The client, a 60-year-old retiree with a moderate risk tolerance and a 15-year time horizon for accessing funds, is concerned about market volatility. The IAR recommends a variable annuity with a guaranteed minimum withdrawal benefit (GMWB) rider. Which of the following statements best describes the primary benefit of the GMWB rider in this scenario?

   • A.It provides a death benefit that is always equal to the highest contract value achieved.
   • B.It ensures the client can withdraw a predetermined minimum amount annually, irrespective of the subaccount performance.(Correct)
   • C.It offers tax deferral on all earnings and capital gains until withdrawal.
   • D.It guarantees the principal investment amount regardless of market performance.

   Explanation

   The GMWB rider's primary function is to provide a guaranteed income stream for life or a specified period, even if the underlying investment subaccounts perform poorly. While some principal protection may be inherent, the core benefit is the guaranteed withdrawal amount. The death benefit and tax deferral are features of variable annuities but not the specific primary benefit of a GMWB rider.

2. Question 2Accredited Investor Rules

   A registered investment advisor (RIA) is evaluating the suitability of a private placement offering for a client. The client has a net worth of $800,000, excluding their primary residence, and an annual income of $150,000. The private placement requires investors to be accredited investors, defined as having a net worth of at least $1 million or annual income exceeding $200,000 for the last two years. Based on these figures, can the RIA recommend this private placement to the client?

   • A.No, unless the client's primary residence is valued at over $200,000.
   • B.No, because the client's net worth is below the $1 million threshold, and their income is below the $200,000 threshold.(Correct)
   • C.Yes, because the client's combined net worth and annual income exceed the minimum requirements.
   • D.Yes, because the client's annual income is sufficient to meet the income requirement.

   Explanation

   To be an accredited investor based on income, an individual must have an annual income exceeding $200,000 for the last two years, with a reasonable expectation of reaching the same income level in the current year. The client's income of $150,000 does not meet this requirement. Alternatively, an individual can qualify with a net worth of at least $1 million, excluding the value of their primary residence. The client's net worth of $800,000 does not meet this requirement either. Therefore, the client is not an accredited investor based on the provided information.

3. Question 3Portfolio Risk Management

   An investment advisor representative (IAR) is managing a client's portfolio that includes a significant allocation to growth stocks. The client expresses concern about a potential market downturn and asks about strategies to mitigate downside risk without completely exiting the market. Which of the following strategies would be most appropriate for the IAR to consider?

   • A.Diversifying the portfolio solely into real estate investment trusts (REITs).
   • B.Increasing leverage by purchasing stocks on margin to capitalize on potential rebounds.
   • C.Implementing a covered call writing strategy on a portion of the growth stock holdings.(Correct)
   • D.Selling all growth stocks and moving into short-term government bonds.

   Explanation

   Writing covered calls involves selling call options against an existing stock position. This strategy generates income from the option premium, which can help offset potential losses if the stock price declines moderately. It also limits potential upside gains. Selling all stocks is too drastic, increasing leverage is counterproductive for risk mitigation, and diversifying solely into REITs does not necessarily mitigate the specific risk of growth stock volatility.

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