Series 63 common mistakes
Series 63 · Understand the traps and how to avoid them.
When a question states an adviser has $90 million in assets under management and an office in the state, the candidate immediately answers 'federally covered - no state registration or filing' and moves on.
Candidates memorize the $100 million AUM dividing line from NSMIA and treat it as the end of the analysis, so every large-adviser fact pattern collapses into one answer.
What to do instead
Run a two-step test on every adviser question: (1) Is the adviser federally covered under NSMIA? If yes, no state registration, but a state notice filing and anti-fraud compliance may still apply. (2) If not federally covered, does a state exemption (de minimis, etc.) apply? Only after both steps pick an answer.
In a fact pattern where the agent works in State B but the customer lives in State A, the candidate selects State B as the state where the agent must be registered.
Candidates carry over 'resident license' thinking from insurance or general licensing, where your home state governs.
What to do instead
Repeat the rule that registration follows the customer: an agent must be registered in the state where the customer resides and where the offer or sale is directed. The agent's office location is irrelevant unless the customer is also there.
The candidate treats a CPA, attorney, or teacher who gives investment advice for a separate fee as automatically excluded from the definition of investment adviser.
The 'professional exclusion' is memorized as a categorical list of occupations rather than as a conditional exclusion.
What to do instead
Apply the 'no special compensation' condition: the exclusion applies only when the advice is solely incidental to the profession and the person receives no separate compensation for it. A CPA charging a fee for portfolio advice is an IA; one whose advice is incidental to tax work is not.
The candidate says an adviser with four clients in the state and no office must register because it advertises, or recalls the client threshold as five rather than fewer than six.
The de minimis exemption has two elements, and candidates remember only the number - often the wrong number.
What to do instead
Memorize it as a two-part test: no place of business in the state AND fewer than six clients resident in the state during the preceding 12 months. Advertising alone does not destroy it; a place of business does.
The candidate treats a municipal bond issue as an 'exempt transaction' requiring no filing, or treats a Rule 506 offering as an 'exempt security' that the state cannot touch.
Both concepts are labeled 'exempt,' so candidates store them in one mental bucket and apply whichever label appears in the answer choices.
What to do instead
Keep two separate lists. Exempt securities are instrument types (U.S. government, municipal, bank, nonprofit, commercial paper). Exempt transactions are circumstances (isolated nonissuer, private placement, fiduciary, underwriter). Then add the overlay: exempt transactions still require notice filings and always remain subject to anti-fraud authority.
The candidate answers that a properly conducted private placement under Rule 506 needs no state filing or notice at all, or that the state may bar the offering.
NSMIA preemption is overgeneralized to mean states are entirely out of the picture for covered securities.
What to do instead
State the correct middle position: the state cannot require registration of a covered security, but it can require a notice filing (Form D and fee) and retains full anti-fraud enforcement. Choose 'notice filing plus anti-fraud authority,' not 'nothing' and not 'state approval.'
Faced with a violation, the candidate says the Administrator's first step is to seek a court injunction, or says an appeal of an Administrator's order goes to federal court.
Remedies are studied as an unordered list, so candidates cannot sequence who acts first and where review happens.
What to do instead
Fix the sequence: the Administrator acts by order after notice and hearing; injunctions come from a court, not the Administrator; appeal of a final order goes to the appropriate state court within the statutory period (typically 60 days).
The candidate allows a customer to bring a rescission action five years after the sale, or applies the federal two-year/five-year limits to a state claim.
Federal securities limitations periods are better known and displace the state rule in memory.
What to do instead
Memorize the state pair: no action later than three years after the sale or contract of sale, and no later than two years after discovery of the violation, whichever occurs first. Federal 2/5 numbers are a distractor here.
The candidate marks borrowing money from a client and sharing in a client's account profits as permitted whenever the arrangement is disclosed in writing.
Disclosure is taught as the universal cure for conflicts, so candidates apply it to prohibitions that require more than disclosure.
What to do instead
Know the exceptions that require specific consent: profit-sharing requires written consent of both the customer and the broker-dealer; borrowing from a customer is prohibited unless the customer is a firm/affiliate, a family member, or the firm's written procedures expressly permit it. Disclosure alone is never enough.
The candidate marks a client testimonial or a performance claim in a sales piece as automatically prohibited under state law.
FINRA advertising restrictions are better rehearsed and get imported into the state-law question.
What to do instead
Under state rules, testimonials and performance claims are permitted if they are not misleading - e.g., disclose that the testimonial does not guarantee future results and that past performance is no guarantee of future results. The state test is misleading versus not misleading, not per se banned.