SEC Certified Investment Solicitor (CIS) common mistakes
SEC Certified Investment Solicitor (CIS) · Understand the traps and how to avoid them.
Treating the CIS licensing and conduct rules as a single 'compliance' topic and memorising only the headline prohibition, so that questions asking which specific activity requires a licence, who is exempt, or which notification must be filed within what period are answered from a vague general impression.
Candidates often revise regulation last and in bulk, skimming a summary instead of reading the actual licensing triggers, exemptions and filing deadlines. Because the rules are interlocking, a half-remembered version feels sufficient until a scenario asks for the precise step.
What to do instead
Build a one-page decision table per regulated activity: what triggers licensing, the statutory exemption, the notification or approval required, and the deadline. For each row write one short scenario you invent yourself and test whether you can name the exact obligation without notes. Re-test weekly until the table is recalled cold.
Answering ethics and suitability questions by choosing the option that sounds most client-friendly, such as disclosing a conflict and proceeding, rather than identifying the option that actually removes or manages the conflict and documents the rationale.
Ethics items are written so that several answers are defensible in ordinary commercial life. Candidates pick the 'nice' answer instead of the one that satisfies the specific duty (avoid, disclose and manage, obtain consent, or decline), because they never separated those duties in study.
What to do instead
Learn the hierarchy explicitly: avoidance where required, then management, then disclosure, then consent, and know which situations demand each. For every practice scenario, write one line naming the duty engaged and the evidence that would prove compliance, then select the answer that matches that duty rather than the tone.
Confusing suitability assessment with appropriateness assessment, or applying the retail suitability test to a professional investor without checking the classification and the applicable standard.
The two tests share vocabulary and both involve knowing the client, so under time pressure candidates default to the stricter test everywhere, or skip client categorisation entirely and answer on product risk alone.
What to do instead
Write a short comparison of the two tests covering what must be assessed, what record must be kept, and when each applies, plus the criteria for professional or elective professional status. Practise classifying five invented clients first, then applying the correct test to each.
Calculating equity returns or valuations with the wrong share count or the wrong earnings basis, for example using basic rather than diluted shares, pre- rather than post-rights figures, or ignoring the treatment of convertible instruments and options.
Candidates memorise formulas but not the definitions feeding them, so the arithmetic is right while the inputs are wrong. Dilution and corporate-action adjustments are the usual blind spot because they are learned separately from the core ratio.
What to do instead
For each metric you use (EPS, P/E, dividend yield, NAV per share, fully diluted ownership), write the definition including which share count and which earnings figure apply. Work three invented examples that each contain a convertible, an option grant and a rights issue, and reconcile basic to diluted step by step.
Quoting bond yields or prices without stating and applying the correct convention, mixing clean and dirty price, or using a money-market basis for a bond that accrues on an actual/actual basis.
Yield figures look interchangeable and the conventions are learned as footnotes. Under exam pressure candidates plug numbers into a familiar formula and never check day-count, settlement date or whether accrued interest belongs in the answer.
What to do instead
Keep a convention sheet listing day-count basis, compounding frequency, settlement assumptions and clean versus dirty treatment for each instrument type you study. Before any calculation, write the convention in the margin, then compute. Drill accrued interest and price-yield conversion on invented settlement dates that fall mid-coupon.
Describing a derivative's payoff or risk in general terms ('the investor profits if the market rises') instead of stating the payoff formula, the direction of each leg, and the maximum loss or gain under the stated scenario.
Candidates learn product descriptions rather than payoff mechanics, so they cannot trace a structured note through its components. Structured products compound this by embedding options, caps and barriers whose interaction is invisible in a summary.
What to do instead
For every derivative and structured product you revise, draw the payoff diagram from the formula and label breakeven, cap, floor and barrier. Then decompose the structure into its building blocks and price the intuition of each leg. Practise with invented terms so you must compute rather than recall.
Treating all collective investment schemes as equivalent, ignoring differences in legal form, valuation and pricing frequency, redemption terms, gating and suspension powers, and the resulting liquidity mismatch for the investor.
Fund questions reward precision about structure, but candidates revise funds as a list of product types. The distinctions that matter (open versus closed ended, dealing frequency, notice periods, side letters) are skimmed because they seem administrative.
What to do instead
Create a comparison grid across legal form, dealing and valuation frequency, notice and settlement, liquidity tools available, and investor protections. Populate it from primary documents you summarise yourself, then answer scenario questions about an investor needing cash within a stated period and justify the fund choice.
Constructing a portfolio answer around a single expected-return ranking, without linking the allocation to the client's stated objectives, time horizon, liquidity needs, tax position and risk tolerance, or without showing how correlation affects the result.
Candidates default to the optimisation they practised, which rewards return maximisation, and treat IPS constraints as preamble. Diversification is recited but not applied, so the answer ignores how assets combine.
What to do instead
Adopt a fixed sequence for every allocation question: restate objectives and constraints, translate them into quantifiable limits, propose the allocation, then test it against each constraint and comment on correlation and rebalancing. Practise writing the constraint list before any numbers, so the allocation is visibly driven by the client.
Applying a valuation multiple or discount model without checking that the comparables, growth assumptions and discount rate are consistent with the company's stage, capital structure and the currency and inflation of the cash flows.
Candidates learn the mechanics of DCF and comparables in isolation and then apply them mechanically. Terminal value assumptions and the match between nominal cash flows and nominal discount rates are the most frequent inconsistencies.
What to do instead
Before computing, write the assumption set explicitly: forecast horizon, growth path, discount rate derivation, terminal approach, and currency and inflation basis. Then run a sensitivity table on the two assumptions that most affect value and state which way the value moves. Do this on invented companies with different capital structures.
Listing risk types without mapping them to controls, owners and evidence, so that a question asking how a specific risk is mitigated receives a definition of the risk instead of the control and the monitoring that proves it works.
Risk content is often memorised as vocabulary. Candidates can name market, credit, liquidity and operational risk but have not practised the control side, and so cannot connect a limit, a report or an escalation path to the risk.
What to do instead
Build a risk-control matrix with one row per risk: source, metric or limit, monitoring frequency, escalation trigger, control owner and evidence retained. For each row write an invented breach scenario and the exact steps and records that follow. Answer questions from the control column, not the definition column.