Free NASAA Series 65 (Uniform Investment Adviser Law Examination) Client Investment Recommendations and Strategies Practice Questions
Client investment recommendations and strategies is the largest section on the NASAA Series 65 exam (NASAA). Questions cover asset allocation, modern portfolio theory, tax considerations, retirement planning, behavioral finance, and suitability standards.
Sample Questions
Question 1
Easy
A portfolio earned 18% over 18 months. What is the annualized return?
Solution
Choice A is correct because to annualize a holding period return, divide by the number of years: 18% ÷ 1.5 years = 12%. This converts the 18-month total return to an equivalent annual rate.
Question 2
Medium
Which statement about Section 529 college savings plans is correct?
Solution
B is correct. In a 529 plan, the account owner (typically a parent or grandparent) retains legal control over the account: she directs investment elections, authorizes distributions, and may change the designated beneficiary to another eligible family member at any time. The beneficiary has no right to demand withdrawals or redirect the account, which is one reason 529 assets receive favorable treatment for federal financial-aid purposes compared to assets held in the student's name.
Question 3
Hard
A high-income client, age 55, has maximized her 401(k) contributions and wants to execute a backdoor Roth IRA strategy. She currently has $100,000 in a Traditional IRA from a prior rollover. Her adviser should inform her that:
Solution
Choice A is correct because the pro-rata rule (IRC Section 408(d)(2)) aggregates all Traditional, SEP, and SIMPLE IRA balances when determining the taxable portion of any conversion. With $100,000 of pre-tax Traditional IRA funds, a new $7,000 nondeductible contribution would bring total IRA balances to $107,000, of which $100,000 (93.5%) is pre-tax. Converting only $7,000 to Roth would result in approximately 93.5% of the conversion ($6,545) being taxable as ordinary income, defeating most of the tax benefit of the backdoor strategy.