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Financial Services · Series 65

FINRA Series 65 – Uniform Investment Adviser Law Exam Practice Test

Series 65 practice concerns investment adviser law and the financial concepts advisers use when working with clients. The question bank samples portfolio risk and diversification, investment products such as bonds, preferred stock, and options, and planning concepts including cash flow, investment policy statements, and asset-based fees.

Exam overview

Exam providerFinancial Industry Regulatory Authority
Exam codeSeries 65
CategoryFinancial Services

About the FINRA Series 65 – Uniform Investment Adviser Law Exam

Working through these topics involves connecting a client’s circumstances with suitable investment analysis and adviser responsibilities. Portfolio questions ask you to interpret diversification, concentration risk, volatility limits, and comparisons with market indexes. Product questions test how bond credit quality, preferred-stock dividend priority, and call-option rights affect an investor’s position. Planning scenarios involve distinguishing income from expenses, documenting objectives and risk tolerance in an investment policy statement, and reassessing a plan when a client’s financial situation changes. Fee questions require translating an assets-under-management rate into a dollar charge as account value changes. These skills support client discussions, portfolio review, and clear explanations of investment risks, rights, and costs.

Sample Practice Questions

Review a selection from this exam's published US Practice Tests practice bank.

Question 1

An adviser wants to compare a portfolio’s results with a relevant market index. What is an important limitation of such a comparison?

  1. AAn index is directly investable in every case and has no costs.
  2. BAn index may not reflect the portfolio’s holdings, risk, or fees exactly.
  3. CA benchmark proves that the adviser caused the portfolio’s returns.
  4. DAn index comparison removes the effects of market conditions.
Show answerCorrect answer: B

A benchmark is useful only to the extent it is relevant, but an index may differ from a client portfolio in composition, risk, expenses, and implementation. Comparison alone does not establish skill or causation.

Question 2

An investor holds a bond that is rated below investment grade. Which characteristic is generally associated with this bond?

  1. ALower credit risk than a highly rated government bond
  2. BHigher default risk, often accompanied by a higher offered yield
  3. CA guarantee that principal will be repaid at maturity
  4. DA market price that cannot fluctuate
Show answerCorrect answer: B

Below-investment-grade bonds generally have greater risk that the issuer will fail to make required payments. Investors often demand higher yields to compensate, although the higher yield does not eliminate the risk.

Question 3

A corporation issues preferred stock with a stated dividend preference over common stock. Which statement generally describes that preference?

  1. APreferred shareholders are generally paid dividends before common shareholders, if dividends are declared
  2. BPreferred shareholders always control a majority of the company’s votes
  3. CPreferred dividends are guaranteed in every period
  4. DPreferred shareholders have a claim ahead of creditors in liquidation
Show answerCorrect answer: A

Preferred stock generally has priority over common stock for dividends when the board declares them and, in liquidation, for assets ahead of common shareholders but behind creditors. The stated dividend is not necessarily guaranteed, and preferred shares commonly have limited voting rights.

Question 4

A client’s portfolio is concentrated in one employer’s stock, and the client also relies on that employer for salary. What is a principal concern with this situation?

  1. AThe client has eliminated exposure to company-specific risk because both sources are related.
  2. BA decline in the employer’s business could affect both the client’s employment income and investment value.
  3. CThe stock’s return must match the client’s salary growth over time.
  4. DHolding employer stock prevents the client from owning diversified investments.
Show answerCorrect answer: B

The client’s financial well-being is tied to the same company through both employment and investment exposure. A business downturn could harm income and portfolio value at the same time, increasing concentration risk.

Question 5

A client’s income is substantially higher than the client’s recurring expenses. In financial planning, what does this difference most directly represent?

  1. AThe client’s liquidity premium
  2. BThe client’s cash flow surplus
  3. CThe client’s tax basis
  4. DThe client’s duration gap
Show answerCorrect answer: B

A cash flow surplus is the amount by which income exceeds expenses over a period. It may be available for saving, investing, debt repayment, or other goals.

Question 6

An investor buys a call option. Which right does the call generally give its holder?

  1. AThe right to sell the underlying asset at a specified price by a stated date.
  2. BThe obligation to buy the underlying asset at the market price on expiration.
  3. CThe right to buy the underlying asset at a specified price by a stated date.
  4. DThe right to receive all dividends paid by the underlying company.
Show answerCorrect answer: C

A call option gives its holder the right, but not the obligation, to buy the underlying asset at the strike price on or before expiration, subject to the option’s terms.

Question 7

Which statement best describes diversification in a portfolio?

  1. AIt ensures the portfolio cannot lose money.
  2. BIt spreads investments across holdings or asset types to reduce the impact of a loss in any one investment.
  3. CIt requires investing only in securities with identical returns.
  4. DIt eliminates the need to consider an investor’s risk tolerance.
Show answerCorrect answer: B

Diversification can reduce concentration risk by spreading exposure across investments, though it cannot eliminate market risk or guarantee against losses. Portfolio choices should still reflect the investor’s circumstances.

How to use this practice test

Access the Series 65 practice bank for free. Each session draws up to 20 random questions from the published bank, and results appear after the session. Use missed questions to identify whether you need more work on investment products, portfolio risk, client planning, or fee calculations.

Preparation tips

  • For portfolio-comparison questions, identify whether the index matches the portfolio’s strategy and note that differences in risk, holdings, and fees can limit the comparison.
  • Contrast credit risk in below-investment-grade bonds with the dividend priority of preferred stock and the contractual right conveyed by a call option.
  • Practice identifying concentration risk when a client’s employment income and investments depend on the same company.
  • In planning scenarios, distinguish recurring income from expenses, relate objectives and volatility limits to the investment policy statement, and reassess the plan after a major financial change.
  • Calculate how an asset-based fee changes when account value changes while the percentage rate remains constant.
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