Series 6 Required Disclosures, Risks, and Fees practice questions
4 of the 50 scored Series 6 questions come from Required Disclosures, Risks, and Fees (~8% of the exam). Free CertFuel-authored sample questions, common mistakes, and the glossary terms you need to know.
Required Disclosures, Risks, and Fees is part of Function 3: Recommendations & Records, one of the four FINRA Series 6 functional areas. This topic carries roughly 8% of the exam (4 of the 50 scored questions). The full function weight is 50% (25 scored questions).
Practice questions on prospectus delivery, 12b-1 fees, sales loads, surrender charges, expense ratios, breakpoints, and letters of intent.
These are the exam traps that pull the highest miss rates from Series 6 candidates on Required Disclosures, Risks, and Fees questions:
- Forgetting that breakpoint discounts apply at investment thresholds ($25K, $50K, $100K, etc.) and a "breakpoint sale" just below a threshold is a violation
- Confusing the contingent deferred sales charge (CDSC) on Class B shares with the front-end load on Class A
- Treating the 12b-1 fee as a sales charge rather than an ongoing annual expense (it shows up in expense ratio, not in the load)
8 hand-checked Series 6 sample questions on Required Disclosures, Risks, and Fees, sampled from the CertFuel practice bank. Click any answer choice to reveal the explanation and the "why it matters" note. Every question is multiple choice (A/B/C/D, one correct answer) and matches the format of the real FINRA exam.
All of the following are accurate statements about return of capital distributions except:
Correct answer: B. This is inaccurate (the exception). ROC is reported on Form 1099-DIV Box 3 as Nondividend Distributions, not Box 1a.
Why not the others?
- A (ROC is not currently taxable to the shareholder when basis remains above zero.): This is accurate. ROC defers tax until the shares are sold or until basis reaches zero.
- C (ROC reduces the shareholder's cost basis dollar-for-dollar.): This is accurate. Basis is reduced by the ROC amount, preserving the deferred tax for realization at sale.
- D (The fund must notify shareholders in writing of any distribution that includes ROC.): This is accurate. When a distribution includes ROC, the fund must deliver a written notice identifying the source breakdown so shareholders can record basis reductions correctly.
ROC facts and 1099-DIV Box 3. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A member firm reasonably believes a customer is the victim of financial exploitation. Under the financial-exploitation hold framework, the maximum length of the initial temporary hold placed on a disbursement from the account is:
Correct answer: B. Correct. The initial temporary hold is up to 15 business days from placement. This is the first stage of the 15 to 25 to 55 business-day progression.
Why not the others?
- A (5 business days): 5 business days is not the initial hold period. The initial hold is longer.
- C (25 business days): 25 business days is the total after the internal extension (15 initial plus 10 extension), not the initial hold.
- D (30 calendar days): The hold durations are measured in business days, not calendar days, and the initial hold is 15 business days, not 30.
15 business day initial hold. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A customer holds a closed-end fund trading at a persistent discount to NAV and wishes to sell quickly. The customer is experiencing:
Correct answer: C. Correct. Liquidity risk is the risk that an investment cannot be sold quickly at a fair price. A closed-end fund trading at a discount illustrates this risk, as the investor cannot redeem at NAV.
Why not the others?
- A (call risk): Call risk applies to callable bonds, not to closed-end fund share trading.
- B (credit risk): Credit risk is the risk of issuer default. It does not describe discount-to-NAV trading.
- D (reinvestment risk): Reinvestment risk concerns redeployment of cash flows. It does not describe the inability to exit a closed-end fund position at NAV.
Liquidity risk in closed-end funds. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A Trusted Contact Person (TCP) designated on a customer's account is authorized to:
Correct answer: C. Correct. The TCP is a resource for the firm to address possible financial exploitation, confirm current contact information, health status, or the identity of legal guardian, executor, trustee, or power-of-attorney holder, and as otherwise permitted under the financial-exploitation framework. The TCP cannot place trades or override the account owner.
Why not the others?
- A (place trades and authorize withdrawals from the account on behalf of the customer): The TCP is not authorized to direct account activity. The TCP is a resource for the firm, not a decision-maker for the account.
- B (act as a de facto adviser or custodian on the account): The TCP is not a de facto adviser or custodian. The TCP's role is limited to the four purposes specified in the governing rule.
- D (override the customer's investment decisions at any time): The TCP cannot override the customer's investment decisions. The account owner retains decision authority.
TCP role and limits. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
Which of the following risks is best described as systematic?
Correct answer: D. Correct. Interest-rate risk is systematic: it affects the broad bond market and cannot be diversified away through bond selection.
Why not the others?
- A (The risk that a single fund manager underperforms peers): Manager-specific risk is nonsystematic. It can be reduced by diversifying across managers.
- B (The risk that a single bond issuer defaults): Single-issuer default risk is nonsystematic credit risk.
- C (The risk of concentration in a single sector of the economy): Sector concentration is a form of nonsystematic risk. Spreading across sectors reduces it.
Interest-rate risk is systematic. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The Relative Strength Index (RSI) on a 0-100 scale is typically interpreted as overbought above which threshold?
Correct answer: C. Correct. RSI readings above 70 signal overbought conditions. Readings below 30 signal oversold. The exam expects the candidate to recognize these thresholds without having to compute the indicator.
Why not the others?
- A (30): 30 is the oversold threshold, not the overbought threshold.
- B (50): 50 is roughly the midpoint of the RSI scale; it is not the overbought threshold.
- D (90): 90 is an extreme RSI reading but is not the conventional overbought threshold. 70 is.
RSI overbought at 70. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
Control relationships between a broker-dealer and an issuer are most commonly encountered in the Series 6 context when:
Correct answer: D. Correct. The canonical Series 6 control relationship is proprietary funds: the BD's affiliate is the fund's underwriter, sponsor, or investment adviser. This affiliation must be disclosed at or before completion of the transaction.
Why not the others?
- A (the rep and the customer share a surname): Shared surname is not a control relationship. A control relationship is about material financial or ownership connection between the BD and the issuer.
- B (the fund is listed on a national securities exchange): Exchange listing does not establish a control relationship.
- C (the customer's account is held in street name at the BD): Street-name custody is a settlement convention. It does not establish a control relationship between the BD and the issuer.
Common control relationship scenarios. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
A customer has an emergency reserve of 6 months of expenses already in a money market account. Additional available funds are the figure properly used to:
Correct answer: B. Correct. Available funds (liquid cash available after setting aside the emergency reserve) is the figure the rep uses to match the invested amount to the customer's time horizon and liquidity tolerance. The emergency reserve itself stays in money market or high-yield savings.
Why not the others?
- A (calculate the customer's total net worth for marketing purposes): Available funds is not a net-worth calculation. It is a liquidity-for-investment figure.
- C (determine the customer's Medicare eligibility): Medicare eligibility is driven by age and other factors, not by investment-account available funds.
- D (calculate the customer's estimated estate tax): Estate tax calculation uses the taxable estate, not available funds for investment.
Available funds match horizon and liquidity tolerance. This pattern shows up repeatedly on the Series 6, and recognizing it cold is what separates first-try passes from retests.
The 7 glossary terms most likely to appear on Series 6 Required Disclosures, Risks, and Fees questions. Click any term for the full definition, example, and testing pattern.
Prospectus
The SEC-required formal disclosure document for a securities offering, mandated by the Securities Act of 1933. It contains the investment ob...
Load
A sales charge (commission) paid when buying or selling mutual fund shares, compensating brokers and distributors. Front-end loads are deduc...
12b-1 Fees
Annual marketing and distribution fees charged by mutual funds, named after SEC rule 12b-1. Limited to 0.25% for no-load funds and 1.00% max...
Surrender Charge
A surrender charge (also called a Contingent Deferred Sales Charge or CDSC) is a back-end fee applied when an investor withdraws from a vari...
Expense Ratio
The annual fee charged by a mutual fund or ETF, expressed as a percentage of average net assets. Includes management fees, administrative co...
Breakpoint
The investment threshold at which mutual fund sales charges (loads) decrease, encouraging larger investments through volume discounts. Break...
Letter of Intent
A Letter of Intent (LOI) is a non-binding statement by a mutual fund investor pledging to invest enough additional money over a 13-month for...
Other topics in Function 3: Recommendations & Records (50% of the exam, 25 scored questions). Practice each one to round out the function:
Looking for everything? Head to the Series 6 practice questions hub for all 13 topics, or take the 55-question full practice test.