The Ultimate Guide to the Series 63 Exam

The Series 63 exam is the Uniform Securities Agent State Law Examination developed by the North American Securities Administrators Association (NASAA). This exam qualifies prospective securities industry professionals as state securities agents. Most states require a potential candidate to pass this exam prior to state registration. In this blog, we will discuss the structure of the Series 63 exam, highlight 3 highly-tested topics, and provide examples of questions you may encounter.

How is the Series 63 exam structured?

The Series 63 exam consists of 65 multiple-choice questions including Roman numeral style questions. Only 60 questions are scorable. The 5 additional questions are “pretest” questions that are randomly distributed throughout the exam and do not count for or against your score. Once the pretest questions have sufficient statistics to be considered valid questions, they will be added to the test provider’s pool of scored questions. As a test taker, you will never know which questions are pretest and must answer all questions to complete the exam, so you should treat every question as if it counts. 

You will have 1 hour and 15 minutes (75 minutes) to complete the exam and must correctly answer 43 of the 60 scorable questions to achieve a passing score of 72%. 

The Series 63 exam is presented in a bell curve. Exams presented in this manner should start with easier questions, move to more challenging questions, and end with easier ones. However, we recommend test takers enter the exam with no expectations concerning question difficulty. It can be discouraging to encounter a question that you consider difficult when you were expecting an “easy” question. Answer each question to the best of your ability, and don’t let an expectation of the order of difficulty dictate your overall confidence. Remember: if you have prepared for the exam properly, it won’t matter when the difficult concepts appear.

To pass the Series 63 exam, you must demonstrate that you have the knowledge needed in specific areas of competency to allow registration as an agent. The Series 63 exam structure and breakdown is as follows:

View the NASAA Series 63 Content Outline 

What topics should I focus on when studying for the Series 63 exam?

When it comes to studying for the Series 63, there are specific topics that are highly testable. Regulation of broker-dealers and their agents makes up 30% of the exam and communications and ethics make up 45% of the exam. Within these areas, we have identified 3 topics that students should focus on: 

1. Registration requirements

2. Communication with investors

3. Ethical business practices

Let’s take a look at each topic and explore some sample questions.

1. Registration Requirements

The Series 63 exam emphasizes knowing and understanding the state laws and regulations based on the Uniform Securities Act. These regulations define the individuals, securities, and transactions that require registration at the state level. They also define those that do not require registration either by exclusion or exemption. An exclusion means that registration is not required because the individual, firm, security, or transaction does not meet the definition of the group in question and is excluded from registration requirements. An exemption means the item does meet the definition, but for some reason has been released from the obligations of the group. Even though both exclusions and exemptions allow the group to avoid registration at the state level, the exam will require you to differentiate between the two. 

Let’s look at a practice question illustrating this:

The correct answer is A. Any firm that has no place of business in the state and has no customers in the first, or has no place of business in the state and deals solely with issuers, broker-dealers, or financial institutions, is excluded from registration requirements. If the firm has a client that is temporarily located in another state, then the firm will also be excluded from registration requirements. Once the customer becomes a resident, the firm must be registered in that state to do business with that customer. Investment advisors are not required to register in a state where they have 5 or fewer clients in a 12-month period. This exemption, called the de minimis exemption, does not apply to broker-dealers.

The following video provides an explanation of broker-dealer exclusions and exemptions under the Uniform Securities Act.

2. Investor Communications

State regulations address the required disclosures that must be made to customers, unlawful representations made to customers, the required account paperwork, and the expectations regarding correspondence and advertising. One of the most tested regulations deals with the proper disclosures involved with investment advisory accounts.  State regulations mandate a customer signed investment advisory contract and the customer’s signature acknowledging receipt of the investment adviser’s brochure.  The regulations further stipulate timeframes for delivery of the adviser’s brochure. 

Here is an example of a question regarding the delivery requirements of the adviser’s brochure:

The correct answer is B. An investment adviser must provide its clients with the written disclosure document, called the brochure. Under the brochure rule, the IAR must deliver the brochure to each advisory client at least 48 hours prior to the client signing an advisory contract. When that is impossible, the brochure can be delivered at the time of entering into the contract, if the client has the right to terminate the contract without penalty within 5 business days after entering into the contract.

The following video explains the information found in the brochure along with the delivery requirements.

3. Ethical Business Practices

The Series 63 exam will differentiate between unethical and fraudulent business practices.  Fraudulent business practices rise to the level of criminal activity. While unethical business practices are prohibited, they are usually unintentional and not criminal. Regulations address all aspects of the industry. This includes compensation structures, handling of client funds and securities, custody obligations, trading activities, conflicts of interest, criminal activities, ethical considerations, cyber security, and data protection.

Here is an example of a question covering agent commissions:

The correct answer is B.  Sharing commissions is only allowed between agents that are registered in the same state and are with the same firm or an affiliate.  Choice C is also correct.  However, test takers must choose the best answer, and since B is a more complete answer, that is the correct choice.  There is no regulatory requirement under the Uniform Securities Act (USA) that this must be approved by the employing firm.  However, most firms will require notification to be able to process any commission sharing through their pay structures.  

The following video discusses the obligations of investment advisory firms regarding custody:

How can I prepare for the Series 63 exam?

A.D. Banker offers a Series 63 online course that includes videos, practice exams, audio, activities, key facts, and can be supplemented with flashcards, study manuals, and web classes. 

We recommend you spend 40–50 hours studying for your exam. Additionally, we recommend you spend most of your time reading the content. This strategy leads to comprehension, as opposed to memorization. Practice tests should be used as assessment tools to gauge your understanding; they should not be your exclusive way of learning the material. 

Our guide to passing your licensing exam on your first attempt provides more information on how to best utilize our online course. 

Though the Series 63 has no corequisite exams, most states require the Series 63 in addition to the SIE exam and Series 6 or Series 7 exams. The exams can be taken in any order, but registration based on the Series 63 cannot occur without passing the SIE exam and the Series 6 or Series 7.