Series 66

No, I have no idea why it's called that either. All I know is that when I got hired onto my company in late October 2010, I knew that I would have 90 days to pass the Series 7 and the Series 66 examinations. Series 7 is a 250-question, five hour test with an hour break in the middle. It's over federal law and the test designers seem fixated on options and municipal bonds. I was told point-blank by one of my coworkers in the office that if a client ever asks about the underwriting of a municipal bond, that I should fire them as a client. No joke. Basically, once you pass the tests, you aren't really required to retain the information, especially since most of the public will have no idea what you are talking about if you start mentioning bear straddles or naked puts. It kind of sounds like both of those should be done in private, no?

The Series 66 tests your knowledge of state laws, without actually being specific to any one state. The State Administrator, who is a shadowy figure at best in the study materials, can require that an investment advisor representative (aka: me, known as a broker or financial advisor in most circles) take the test before they can trade securities in any state. You can see why taking just the Series 7 would be problematic then. I suppose I could sell securities in Puerto Rico or Guam, but since I'm not planning on leaving one of the 50 states anytime soon, I also had to take the Series 66. I like living in a state. States are good.

The actual test is 100 questions long and they give you two-and-a-half hours to complete it. I found that I either know the answer to the question or don't. 99% of the questions on the Series 66 don't involve math so it's basic problem solving and memory recall. Does the State Administrator have this power? What about this one? If we blindfolded the State Administrator and put him in a room with three issuers of corporate securities, a rabbi, and two investment advisors, what do you think would happen? That sort of thing.

There was a couple hard questions that I'm kicking myself for not knowing, mostly because I feel like after 18 months in a MBA program I should have known them. I had to completely guess on how to find the alpha of a stock when given the stock's beta and the expected return. Uhh...6.8? Yeah, that's what I went with too. Then there was a question about the minimum value of an investment needed to fund a monthly stipend of $1,000 in perpetuity with an expected 3% rate of return. There wasn't enough information to do present value calculations since I didn't have the risk free rate so I just started doing some math long-hand with my calculator. It was only after I submitted my test that I realized I had assumed a 3% MONTHLY rate (or 12% annually,  which is huge if you imagine getting that rate of return forever) instead of a 3% ANNUAL return (or .03/12 monthly, which is much more reasonable). I think I've actually had this question in one of my finance courses and I'm pretty sure I got it wrong then too. Fortunately, most people think about college tuition or retirement in terms of an annual amount of money. I'll leave the calculations on monthly cash flow streams to annuity providers. They have charts and everything.

Today also coincides with Day 1 of my liquid diet. I had some eggs this morning because I didn't want to feel sleepy during my test. I had a protein shake for lunch and I'm about ready to go have another. The commercial that got me today while I was watching tv was for an Italian restaurant, but I managed to stay out of the kitchen, although I'm back to feeling hungry and a little stabby right now.

13 more days of this. Really?!?