Series 28 common mistakes
Series 28 · Understand the traps and how to avoid them.
Builds the Form 1-FR-IB calendar off FCM habits - expecting a monthly filing, assuming the mid-year report must be audited, or assuming the annual report is an uncertified internal document - and then misses the actual due dates.
Most candidates arrive from Series 3, 30 or 31 backgrounds where monthly FCM Form 1-FR schedules dominate, and the IB version is deliberately different; the exam is written to catch that carry-over.
What to do instead
Memorize the IB pair as a single line: a certified annual Form 1-FR-IB due within 90 days of fiscal year end, plus an unaudited semi-annual Form 1-FR-IB due within 30 days of the mid-year date, filed electronically through NFA's WinJammer system. Rehearse it as 'annual = certified, 90 days; semi-annual = unaudited, 30 days' so the FCM pattern cannot overwrite it.
Submits a Form 1-FR-IB assembled straight from a bank balance or a bookkeeper's profit-and-loss summary, with no line-by-line tie-out to the general ledger and no sworn oath or notarization, treating the filing as an administrative formality.
Candidates concentrate on the net capital arithmetic and forget the report is a sworn regulatory filing that must be supported by the firm's books and records; small IB books are often kept outside the firm, so the exam tests whether the filer actually owns the numbers.
What to do instead
Before any filing, tie every line of the 1-FR-IB to the trial balance in a written reconciliation, confirm the report is signed and sworn before a notary as required, and confirm that any required accountant's report is unqualified. Retain the reconciliation and the computation workpapers with the filed report so the numbers are reproducible.
Computes net capital as total equity from the balance sheet and then subtracts only the subordinated loan, omitting the required deductions for fixed assets, prepaid expenses, unsecured receivables, advances to affiliates and intangibles, and omitting the prescribed percentage charges on securities, options and foreign currency positions.
Net capital superficially resembles 'equity with a few tweaks' and the deduction list is long and mechanical, so candidates shortcut it - and the exam routinely writes the book-equity figure in as a distractor answer.
What to do instead
Force a two-column worksheet every time: start with current assets (only items convertible into cash within one year), deduct each non-allowable item, then apply each prescribed percentage charge, and finally compare the result to the $45,000 introducing broker minimum. Work through trial-balance-to-net-capital computations until the deduction list can be recited without a prompt.
Treats capital monitoring as purely periodic - seeing a deficiency or a drop below the applicable early-warning level and waiting for the next Form 1-FR-IB due date to disclose it, or continuing to open customer accounts while deficient.
The reporting obligation and the event-driven notification obligation sit in different rules, so candidates collapse them into a single filing task and never internalize that some notices are triggered by events, not by the calendar.
What to do instead
Keep two separate lists in your notes: periodic reporting (annual and semi-annual 1-FR-IB) versus event-driven notices (tell NFA promptly whenever net capital falls below the minimum requirement or below the early-warning threshold that applies to the firm). Also remember net capital must be computable and demonstrable at any time, not only at filing dates, and that a deficiency triggers immediate follow-up and restriction.
Assumes the introducing broker may take a customer's check, deposit it into the IB's own operating or 'customer' account, use it for firm expenses or margin, and forward the balance to the carrying FCM later - or allows customer checks to be made payable to the IB.
In most of retail brokerage the firm ordinarily holds customer funds, so the IB model reads like an exception that candidates flatten into the general case.
What to do instead
State the threshold rule before answering any funds question: an IB that is not also a forex dealer member does not hold customer funds, so customer checks and ACH debits must be payable and transmitted directly to the carrying FCM, and any customer money that does reach the IB must be forwarded promptly and never used for firm obligations.
Tests segregation sufficiency by comparing total cash in the segregated account to total customer deposits, rather than computing the required amount customer by customer including open trade equity, option value and accrued amounts owed to customers, and performs the test only at month-end.
An aggregate cash balance usually 'looks like' it covers customers, and month-end testing is a habit carried over from financial reporting cadence.
What to do instead
Compute required segregation daily as the sum of each customer's net liquidating value plus other amounts owed to customers, then compare that to qualified funds held in the segregated account, and treat any shortfall as reportable regardless of the calendar date. Practice on a small worksheet where an aggregate test passes but a customer-by-customer test fails, so the distinction becomes automatic.
Destroys or archives away supporting records - customer account records, order tickets, net capital workpapers, promotional material - after two or three years, or keeps them only in a format that cannot be produced promptly and legibly on request.
Ordinary business and tax retention habits, plus a belief that 'we scanned it' equals compliance, conflict with the futures recordkeeping standard, and candidates rarely check the retention rule against a specific record type.
What to do instead
Apply the futures standard to every record: retain for five years from the date the record was created, with the most recent two years readily accessible at the firm's office. Electronic images satisfy the rule only if they can be produced promptly and legibly with proper identification and indexing, so build retention periods into a record-type list instead of applying one blanket period.
Treats internal controls as 'we have a compliance manual': no written procedure for how net capital and segregation are computed, no second-person review of the 1-FR-IB before it is filed, and no documented annual review of the supervisory system.
Candidates spend their study time on the substantive arithmetic and treat supervision as a soft topic, so they miss that the exam tests whether a control is written, performed, and evidenced - not merely whether a policy exists.
What to do instead
Memorize the control chain as three distinct deliverables: written procedures (including who computes and who independently reviews net capital and segregation), an annual review of the supervisory system with a written record of that review, and proof of performance such as dated worksheets and sign-offs. On any control question, ask 'who checks it, where is it written, and where is the evidence?'
Begins soliciting customers and accepting orders on the strength of an oral understanding with a carrying FCM before a written guarantee agreement is in place and filed, or keeps routing orders after the guarantee is terminated without notifying NFA.
The commercial relationship is with the FCM, so the paperwork feels like the FCM's responsibility; the exam instead tests the IB's own obligations to document the arrangement and to file and update it with NFA.
What to do instead
Treat the guarantee agreement as a registration-grade document: a written agreement with the carrying FCM, filed with NFA, with NFA notified of any termination or material change. Before the first account is solicited, confirm in writing which party issues customer statements, handles margin calls and receives customer funds.
Allows unregistered individuals or an unregistered branch location to solicit accounts, and relies on the principal's general oversight instead of assigning a designated supervisor and reviewing the branch's sales activity and promotional material.
Small IBs often run lean operations where a producer starts talking to prospects while registration paperwork is pending, and candidates focus on firm-level registration while forgetting that each associated person and each soliciting location has its own requirements.
What to do instead
Build a pre-solicitation checklist: every individual who solicits or handles customer accounts is properly registered (with the required proficiency and background submissions on file), each soliciting location is registered or designated as required with a named supervisor, and all promotional material is reviewed and approved by a qualified supervisor and filed with NFA where the promotional rules require it before use.