A client of an investment adviser representative holds 500 shares of a technology stock with a large unrealized gain. The client wants protection against a significant near-term decline but intends to keep the shares and participate in any further appreciation. Which options strategy best accomplishes this objective?

Write covered calls against the shares

An adviser is explaining derivatives to a client who grows wheat and wants to lock in a sale price for the fall harvest. Which statement most accurately distinguishes an exchange-traded futures contract from a forward contract?

Futures are standardized contracts guaranteed by a clearinghouse, while forwards are customized, privately negotiated contracts that carry counterparty credit risk

Forwards are marked to market daily, while futures settle only at expiration

Futures must be held to physical delivery, while forwards can be offset at any time in the secondary market

Both trade on regulated exchanges, differing only in contract length

An investment adviser representative's client is offered an interest in a hedge fund that avoids registering as an investment company by relying on Section 3(c)(7) of the Investment Company Act of 1940. To purchase the interest, the client generally must be a:

qualified purchaser — for an individual, generally a person owning at least $5 million in investments

accredited investor with a $1 million net worth excluding the primary residence

qualified client under SEC Rule 205-3

qualified institutional buyer with at least $100 million in securities

An SEC-registered investment adviser launches a private fund that charges a 2% annual management fee plus 20% of the fund's profits. Under the Investment Advisers Act of 1940, which investors may be charged the 20% performance-based compensation?

Only investors who meet the definition of a qualified client under SEC Rule 205-3

Any investor who is an accredited investor under Regulation D

Any investor who signs a written acknowledgment consenting to the incentive fee

None — performance-based compensation is always prohibited for registered advisers

A 68-year-old client has annuitized a variable annuity with a 4% assumed interest rate (AIR). Last month's payment was $2,000. If the separate account earns an annualized 4% during the current period, the client's next payment will:

remain $2,000, because the actual return equaled the AIR

reset to the amount of the first annuity payment

increase, because the separate account produced a positive return

decrease, because a 4% return is below typical long-term equity returns

A 55-year-old client no longer needs life insurance protection and wants to reposition the $80,000 cash value of a whole life policy toward retirement income without triggering current taxation. Which transaction accomplishes the objective?

A direct Section 1035 exchange of the life insurance policy for a nonqualified annuity on the same owner and insured

Exchange the policy for an annuity owned by the client's spouse

Withdraw the cash value and contribute it to a Roth IRA

Surrender the policy and use the proceeds to buy an annuity within 60 days

A 32-year-old client with two young children, a tight monthly budget, and 20 years remaining on a mortgage asks an investment adviser representative how to obtain the largest death benefit per premium dollar for the next 20 years. Which product is most suitable?

A 20-year level term life insurance policy

A single-premium deferred annuity

A variable universal life policy

Series 65 Sample Questions by Topic

By Jennifer Mitchell, MBA Reviewed by Michael Carter Updated October 24, 2026

Verified July 2026 against current FINRA & SEC rules.

Our Series 65 question bank is live: 130 free questions, original and verified. Every question is written from NASAA’s public content outline, and every explanation names the trap the question sets and cites the rule it was verified against. Full-length, self-timed runs live on the Series 65 practice test page. This page is the other study mode: drilling by topic until each distinction holds on its own.

Question 1 of 10

An IAR in State A is drafting a market commentary and wants to cite a data series that would confirm an economic recovery has already taken hold, rather than predict one that has not yet arrived. Which indicator would be most appropriate?

The questions in this set

Review all 10 questions

A client of an investment adviser representative holds 500 shares of a technology stock with a large unrealized gain. The client wants protection against a significant near-term decline but intends to keep the shares and participate in any further appreciation. Which options strategy best accomplishes this objective?
1. Buy calls on the stock
2. Write puts on the stock
3. Write covered calls against the shares
4. Buy puts on the stock
Show answer and explanation

Answer: Buy puts on the stock

A protective put pairs long stock with a long put, guaranteeing a minimum sale price at the strike while the client keeps the shares and their upside. The cost of that insurance is the premium, which reduces net profit and raises the position's breakeven. Covered calls generate income but cap gains and offer only premium-deep protection.

The Trap: Tests whether the student confuses the protective put (downside insurance, upside kept) with the covered call (income, upside capped, minimal protection).
- Buy calls on the stock: Confuses adding bullish exposure with hedging: long calls increase the position's exposure to the same stock and expire worthless in a decline, providing no downside protection for the shares.
- Write puts on the stock: Reverses the hedge: a short put obligates the client to buy more shares if the stock falls, increasing downside exposure rather than limiting it.
- Write covered calls against the shares: Names the income strategy, not the hedge: a covered call cushions a decline only by the premium received and caps the upside the client wants to keep — it does not protect against a significant drop.
Verified against: Options Clearing Corporation, Characteristics and Risks of Standardized Options
An investor buys 100 shares of RST at $40 per share and simultaneously writes one RST 45 call for a premium of $3. What is the investor's maximum potential gain on the combined position?
1. Unlimited
2. $800
3. $500
4. $300
Show answer and explanation

Answer: $800

For a covered call, maximum gain equals the appreciation up to the strike plus the premium received: ($45 − $40) × 100 shares + $300 = $800. Breakeven is the stock cost minus the premium ($37), and maximum loss is $3,700 if the stock goes to zero. The short call converts unlimited stock upside into a capped gain in exchange for income.

The Trap: Targets the two classic covered-call arithmetic errors — counting only the premium or only the appreciation instead of both.
- Unlimited: Treats the position as if it were plain long stock; the short 45 call caps all appreciation above the strike, so the upside is strictly limited.
- $500: Counts only the stock appreciation from 40 to the 45 strike and forgets that the $300 premium received is also part of the writer's maximum gain.
- $300: Counts only the premium received and ignores the $5 per share of appreciation the writer keeps when the stock is called away at the 45 strike.
Verified against: Options Clearing Corporation, Characteristics and Risks of Standardized Options
An adviser is explaining derivatives to a client who grows wheat and wants to lock in a sale price for the fall harvest. Which statement most accurately distinguishes an exchange-traded futures contract from a forward contract?
1. Forwards are marked to market daily, while futures settle only at expiration
2. Futures must be held to physical delivery, while forwards can be offset at any time in the secondary market
3. Both trade on regulated exchanges, differing only in contract length
4. Futures are standardized contracts guaranteed by a clearinghouse, while forwards are customized, privately negotiated contracts that carry counterparty credit risk
Show answer and explanation

Answer: Futures are standardized contracts guaranteed by a clearinghouse, while forwards are customized, privately negotiated contracts that carry counterparty credit risk

Futures are exchange-traded, standardized as to quantity, quality, and delivery, marked to market daily, and backed by a clearinghouse that virtually eliminates counterparty risk. Forwards are private, customized OTC contracts — flexible, but illiquid and exposed to the other party's ability to perform. A farmer hedging a harvest could use either, accepting standardization for safety or customization for fit.

The Trap: Tests whether the student has the futures/forwards features reversed — especially which one is marked to market and which one carries counterparty risk.
- Forwards are marked to market daily, while futures settle only at expiration: States the mechanics backward: daily mark-to-market through a clearinghouse is a defining feature of futures, while forwards typically settle once at the contract's maturity.
- Futures must be held to physical delivery, while forwards can be offset at any time in the secondary market: Reverses liquidity reality: most futures positions are closed by an offsetting exchange trade before delivery, whereas customized forwards have no ready secondary market and are usually held to settlement.
- Both trade on regulated exchanges, differing only in contract length: Misses the venue distinction entirely: forwards are over-the-counter contracts, not exchange-traded instruments, and the differences go far beyond maturity.
Verified against: Commodity Exchange Act
An investment adviser representative's client is offered an interest in a hedge fund that avoids registering as an investment company by relying on Section 3(c)(7) of the Investment Company Act of 1940. To purchase the interest, the client generally must be a:
1. accredited investor with a $1 million net worth excluding the primary residence
2. qualified client under SEC Rule 205-3
3. qualified institutional buyer with at least $100 million in securities
4. qualified purchaser — for an individual, generally a person owning at least $5 million in investments
Show answer and explanation

Answer: qualified purchaser — for an individual, generally a person owning at least $5 million in investments

Private funds commonly avoid Investment Company Act registration through Section 3(c)(1) (no more than 100 beneficial owners, typically accredited investors) or Section 3(c)(7) (owned exclusively by qualified purchasers). A qualified purchaser is a materially higher standard than an accredited investor — generally $5 million in investments for individuals. Keeping the three 'qualified' vocabularies straight — accredited investor, qualified client, qualified purchaser — is essential adviser knowledge.

The Trap: Exploits confusion among the three investor-eligibility standards: accredited investor (offering), qualified client (performance fees), and qualified purchaser (3(c)(7) funds).
- accredited investor with a $1 million net worth excluding the primary residence: Applies the Regulation D private-offering standard; accredited-investor status governs how the interests are offered, and it is the lower bar associated with 3(c)(1) funds, not the 3(c)(7) exclusion.
- qualified client under SEC Rule 205-3: Confuses the performance-fee standard with the fund-exclusion standard: qualified client determines who may be charged performance-based compensation, not who may invest in a 3(c)(7) fund.
- qualified institutional buyer with at least $100 million in securities: Applies the Rule 144A resale standard for institutions; QIB status governs certain institutional secondary-market trades, not eligibility to invest in a 3(c)(7) private fund.
Verified against: Investment Company Act of 1940 §3(c)(7) and §2(a)(51)
An SEC-registered investment adviser launches a private fund that charges a 2% annual management fee plus 20% of the fund's profits. Under the Investment Advisers Act of 1940, which investors may be charged the 20% performance-based compensation?
1. Only investors who meet the definition of a qualified client under SEC Rule 205-3
2. Any investor who is an accredited investor under Regulation D
3. Any investor who signs a written acknowledgment consenting to the incentive fee
4. None — performance-based compensation is always prohibited for registered advisers
Show answer and explanation

Answer: Only investors who meet the definition of a qualified client under SEC Rule 205-3

The '2-and-20' hedge fund model is lawful for a registered adviser because SEC Rule 205-3 exempts contracts with qualified clients from Section 205(a)(1)'s general ban on compensation based on capital gains or appreciation. The qualified-client dollar thresholds are inflation-adjusted by the SEC, so the operative test is the structural definition, not a memorized number. Investors who are not qualified clients may be charged asset-based management fees but not a share of the gains.

The Trap: Targets the belief that accredited-investor status or a client's written consent authorizes a performance fee, when it is the Rule 205-3 qualified-client exception that permits it.
- Any investor who is an accredited investor under Regulation D: Confuses the private-offering eligibility standard with the performance-fee standard: accredited-investor status lets someone purchase the fund interest but does not, by itself, permit the adviser to charge performance-based compensation.
- Any investor who signs a written acknowledgment consenting to the incentive fee: Assumes disclosure and consent can cure a statutory prohibition; Section 205(a)(1) bars performance compensation from non-qualified clients regardless of how thoroughly the client consents in writing.
- None — performance-based compensation is always prohibited for registered advisers: States the pre-exception rule as absolute and ignores Rule 205-3, which expressly permits performance fees for qualified clients.
Verified against: Investment Advisers Act of 1940 §205(a)(1); SEC Rule 205-3
A 68-year-old client has annuitized a variable annuity with a 4% assumed interest rate (AIR). Last month's payment was $2,000. If the separate account earns an annualized 4% during the current period, the client's next payment will:
1. reset to the amount of the first annuity payment
2. increase, because the separate account produced a positive return
3. remain $2,000, because the actual return equaled the AIR
4. decrease, because a 4% return is below typical long-term equity returns
Show answer and explanation

Answer: remain $2,000, because the actual return equaled the AIR

The AIR is the earnings assumption built into a variable annuity's payout: actual separate-account return above the AIR raises the next payment, below the AIR lowers it, and exactly equal to the AIR leaves it unchanged. The comparison is always against the AIR and against the prior payment, never against zero or the initial check. Here, 4% actual versus 4% assumed keeps the payment at $2,000.

The Trap: Targets the misconception that any positive separate-account return increases the payment, when the true benchmark is the AIR.
- reset to the amount of the first annuity payment: Invents a reset mechanism that does not exist; each payment adjusts from the immediately preceding payment based on performance versus AIR.
- increase, because the separate account produced a positive return: Uses zero as the benchmark; payments rise only when performance exceeds the AIR, not merely when the return is positive.
- decrease, because a 4% return is below typical long-term equity returns: Benchmarks against historical market averages, which are irrelevant; the only comparison that moves the payment is actual return versus the contract's AIR.
Verified against: Investment Company Act of 1940 (variable annuity separate accounts)
A client owns a fixed indexed annuity that credits interest annually using a point-to-point method with an 80% participation rate, a 6% annual cap, and a 0% floor. The reference index rises 10% during the contract year. What interest rate is credited to the contract?
1. 10%
2. 6%
3. 4.8%
4. 8%
Show answer and explanation

Answer: 6%

Indexed annuity crediting applies the participation rate to the index change, then limits the result to the cap: 10% × 80% = 8%, capped at 6%. The 0% floor protects the contract in down years — the client can earn zero but cannot be credited a loss. These crediting limits are why an indexed annuity is an insurance product with bounded upside, not an equity substitute.

The Trap: Targets order-of-operations errors in indexed-annuity crediting — forgetting the cap, ignoring the participation rate, or wrongly multiplying the two limits together.
- 10%: Credits the full index gain, ignoring both the participation rate and the cap — this contract's crediting terms limit the credit well below the raw index change.
- 4.8%: Multiplies the cap by the participation rate (6% × 80%); the cap is a ceiling applied after the participation calculation, not another input to be discounted.
- 8%: Applies the participation rate but forgets the annual cap, which cuts the 8% participation-adjusted result down to 6%.
Verified against: NAIC Annuity Disclosure Model Regulation (indexed annuity crediting methods)
A 55-year-old client no longer needs life insurance protection and wants to reposition the $80,000 cash value of a whole life policy toward retirement income without triggering current taxation. Which transaction accomplishes the objective?
1. Exchange the policy for an annuity owned by the client's spouse
2. Withdraw the cash value and contribute it to a Roth IRA
3. Surrender the policy and use the proceeds to buy an annuity within 60 days
4. A direct Section 1035 exchange of the life insurance policy for a nonqualified annuity on the same owner and insured
Show answer and explanation

Answer: A direct Section 1035 exchange of the life insurance policy for a nonqualified annuity on the same owner and insured

Section 1035 allows tax-free exchanges of life insurance for life insurance, life insurance for an annuity, and annuity for annuity — but not annuity back into life insurance. The exchange must be a direct transfer between insurers with the same owner and insured; taking possession of the cash breaks the exchange and taxes the gain. Life-to-annuity is a common fit when a client's protection need has ended and income is the new goal.

The Trap: Targets the belief that a 60-day rollover window applies to insurance exchanges, when 1035 treatment requires a direct insurer-to-insurer transfer.
- Exchange the policy for an annuity owned by the client's spouse: Breaks the same-owner/same-insured requirement; changing the parties to the contract disqualifies the transaction from 1035 nonrecognition treatment.
- Withdraw the cash value and contribute it to a Roth IRA: Confuses product repositioning with retirement-account funding: the withdrawal is taxable on the gain, and Roth contributions are separately limited and require earned income — this is not a tax-free exchange.
- Surrender the policy and use the proceeds to buy an annuity within 60 days: Imports the IRA 60-day rollover concept where none exists: a surrender is a taxable event on any gain over basis, and no repurchase window restores 1035 treatment — the exchange must be direct.
Verified against: Internal Revenue Code §1035
A 32-year-old client with two young children, a tight monthly budget, and 20 years remaining on a mortgage asks an investment adviser representative how to obtain the largest death benefit per premium dollar for the next 20 years. Which product is most suitable?
1. A single-premium deferred annuity
2. A variable universal life policy
3. A whole life policy
4. A 20-year level term life insurance policy
Show answer and explanation

Answer: A 20-year level term life insurance policy

When the need is temporary and the budget is constrained, term insurance provides the greatest death benefit per premium dollar because it carries no cash-value component. Recommending a costlier permanent or investment-linked policy for a defined 20-year protection need would raise suitability concerns under NASAA's unethical-practices standards. Matching product design to the client's stated objective is the core of the analysis.

The Trap: Targets the assumption that policies with cash value are inherently better recommendations than pure protection matched to the client's need and budget.
- A single-premium deferred annuity: Confuses insurance-company product lines: an annuity is an accumulation and income vehicle, not a death-benefit protection product, and it fails the client's stated need entirely.
- A variable universal life policy: Adds separate-account market risk and higher costs to meet an objective the client does not have; VUL is an accumulation-oriented product, not the cheapest route to maximum temporary coverage.
- A whole life policy: Assumes cash-value accumulation is always superior; whole life's permanent coverage and savings element make its premium far higher per dollar of death benefit, straining a tight budget for a temporary need.
Verified against: NASAA Model Rule on Unethical Business Practices of Investment Advisers, Investment Adviser Representatives, and Federal Covered Advisers (unsuitable recommendations)
An investment adviser representative is evaluating a non-traded real estate limited partnership (a direct participation program) for a high-tax-bracket client. Which of the following characterize the investment? I. Income and losses flow through directly to the limited partners II. The interests are generally illiquid, with no ready secondary market III. Limited partners take an active role in day-to-day management IV. Passive losses generally may be used only to offset passive income
1. II and III only
2. I, III and IV only
3. I and II only
4. I, II and IV only
Show answer and explanation

Answer: I, II and IV only

A DPP's defining tax feature is flow-through: income and losses pass to the partners without entity-level tax, but under IRC §469 those losses are passive and generally usable only against passive income, not wages or portfolio income. The interests are illiquid, and limited partners preserve limited liability precisely by staying out of day-to-day management, which belongs to the general partner. All three surviving statements drive the suitability analysis.

The Trap: Targets two misconceptions at once — that limited partners manage the business, and that partnership losses can shelter a client's ordinary or portfolio income.
- II and III only: Includes the management error: limited partners who take part in day-to-day control risk losing their limited-liability protection — management is the general partner's role — and this choice also drops the flow-through feature.
- I, III and IV only: Both includes the false statement about limited partners managing the business (III) and excludes illiquidity (II), one of the most important suitability considerations for a non-traded partnership.
- I and II only: Stops short of the tax analysis: it omits IV, the IRC §469 passive-activity limitation that is central to evaluating a DPP for a high-bracket client.
Verified against: Internal Revenue Code §469; Internal Revenue Code Subchapter K (§§701–704)

What the bank covers

The 130 questions are built to NASAA’s four content areas, in the exact proportions the exam uses:

Content area	Outline weight	Exam questions	Our questions
Economic factors and business information	15%	20	20
Investment vehicle characteristics	25%	32	32
Client investment recommendations and strategies	30%	39	39
Laws, regulations, and guidelines, including prohibition on unethical business practices	30%	39	39

Those weights come from the NASAA outline in effect since June 12, 2023, and they are the same four weights the outline before it used. What that revision changed for the Series 65 was the topic content and the pass mark. NASAA has also said that questions affected by the investment adviser advertising model rule amendments it adopted in May 2026 will be updated in early 2027, so check the date on anything you study from.

The eleven topic clusters

Within the four areas, the bank is organized into eleven clusters, because “investment vehicles” is too wide to drill as one unit. The counts are exact:

Economics and analysis (20 questions)

Economic analysis: business cycles, indicators, monetary and fiscal policy, the yield curve. 10 questions.
Financial reporting and quantitative methods: ratios, EPS, cash flow, time value of money, risk measures. 10 questions.

Investment vehicles (32 questions)

Equity and pooled vehicles: common and preferred stock, valuation, ADRs, funds and share classes. 12 questions.
Fixed income vehicles: yields, ratings, duration, TIPS, municipal comparisons. 10 questions.
Derivatives, alternatives, and insurance products: options strategies, futures and forwards, private-fund eligibility, annuities. 10 questions.

Recommendations and strategies (39 questions)

Retirement and tax-advantaged accounts: IRAs, employer plans, rollovers, RMDs, education accounts. 13 questions.
Client profiles and recommendations: objectives, horizon, risk capacity, behavioral bias. 10 questions.
Portfolio theory and strategy: efficient frontier, CAPM, market efficiency, allocation and rebalancing. 10 questions.
Trading and performance measurement: order types, best execution, soft dollars, return calculation, GIPS. 6 questions.

Laws and ethics (39 questions)

Investment adviser regulation: the definition of an adviser, exclusions, exemptions, federal versus state registration. 20 questions.
Ethics and fiduciary practices: disclosure of conflicts, custody, advisory contracts, prohibited conduct. 19 questions.

The mix by difficulty is 40 easier questions, 64 mid-difficulty, and 26 hard. The hard band is where the exam actually separates candidates, so a bank that is uniformly easy will flatter you.

How to drill by weakness

Topic drilling is worth doing in a specific order, not at random.

Take one pass through a cluster cold. No notes. The point is a measurement, not a score.
Sort your misses into two piles. Pile one is facts you never learned. Pile two is distinctions you half-learned and applied to the wrong case. Pile two is the larger pile for most candidates on this exam, and it is the one practice questions fix.
Re-drill only the cluster the miss came from, not the whole area. A rollover-withholding error and a rebalancing error both sit in recommendations, but they need different repairs.
Weight your time by the outline, not by comfort. Recommendations and law carry 78 of the 130 scored questions between them. Economics carries 20. Time spent should follow that ratio, even when economics feels more tractable.
Move to full-length work when clusters hold individually. Mixed, timed practice tests whether you can switch between four kinds of thinking under a clock, which is a separate skill. That is what the practice test page is for.

The traps that repeat, area by area

Every question in the bank carries an explicit trap statement, because knowing which wrong answer was built for you is most of the learning. The recurring ones:

Economics. Indicator classification is the reliable trap: initial claims lead, payrolls are coincident, and duration of unemployment lags, even though all three sound like the same statistic. The other is direction: the Fed buying securities eases policy, and selling tightens. Reversing that costs several questions.

Investment vehicles. Arithmetic denominators. Current yield divides the coupon by the price paid, not by par. A fund’s sales charge is a percentage of the public offering price, not of NAV. Taxable-equivalent yield divides by one minus the tax rate. Also watch the credit-rating boundary between BB+ and BBB minus, which is the line between junk and investment grade.

Recommendations and strategies. The central one is risk tolerance versus risk capacity. A client’s stated willingness to take risk does not override an objective inability to absorb a loss, and the duty of care binds to the more restrictive of the two. Close behind: the current RMD age is 73 under SECURE 2.0, and the 20% mandatory withholding applies to indirect rollovers from employer plans, not to trustee-to-trustee transfers. CAPM questions bait you into multiplying beta by the market return instead of by the market risk premium.

Laws and ethics. Fraud under Advisers Act section 206(2) does not require proof of bad intent. An undisclosed conflict is itself a violation. Discretion is not custody. Assignment of an advisory contract requires client consent. And a client waiver, even a sophisticated client’s, cannot extinguish rights under the securities laws. The definition questions turn on all three prongs of the advice, business, and compensation test, never on one alone.

Our standard, stated up front

Every question we publish, on the SIE®, Series 7, Series 63, and Series 65 alike, meets the same bar: original work written from the public content outline, adversarially verified against current rules, and dated where the facts move. Real exam content is confidential, so any provider advertising actual exam questions is describing a violation rather than a feature.

Two Series 65 facts go stale most often. The passing score is 92 of 130, not the 94 that copies written before June 2023 still print, and the $187 fee did not change when FINRA raised its own exam fees in January 2026. Both numbers, with the rest of the logistics, are on the Series 65 cost and format page. For a study order built around the same weights this bank uses, see the Series 65 study guide, for what the qualification actually permits, what the Series 65 is, and for the whole picture, the Series 65 exam guide.