Free Series 66 Glossary — 50 Terms in Plain English

The first 50 terms from our full Series 66 glossary, defined so a beginner actually gets them. Type to filter:

Administrator

The state official or agency that enforces the securities laws within that state, including registration, examinations, and discipline. Often the same person across many states, but on the exam it is whoever holds enforcement authority in the state in question.

Administrator Powers

The authority to make rules, conduct investigations, issue subpoenas, deny, suspend, or revoke registrations, and issue cease and desist and stop orders. Trap: the Administrator cannot impose criminal penalties or jail time directly; those come through the courts.

Agent (Securities Agent)

An individual who represents a broker-dealer in effecting or attempting transactions in securities. Trap: the firm is the broker-dealer; the human salesperson is the agent, and clerical staff who only handle paperwork are not agents.

Brochure Rule

The requirement that an investment adviser deliver Form ADV Part 2 (the disclosure brochure and brochure supplement) to clients, generally before or at the time of entering the advisory contract. Trap: must also be offered or delivered annually thereafter.

Broker-Dealer

A person or firm in the business of effecting securities transactions for others (broker) or for its own account (dealer). Excluded are agents, banks, and firms with no in-state office that deal only with existing out-of-state clients or institutions.

Cease and Desist Order

An order from the Administrator directing a person to stop a violation, which may be issued with or without a prior hearing. It is administrative, not a court injunction.

Consent to Service of Process

A document filed with registration appointing the Administrator as the registrant's agent to receive legal papers, giving the state legal reach over the registrant. It is filed once and remains in effect permanently.

Custody

An adviser holding or having access to client funds or securities, which triggers heightened requirements such as surprise audits and segregation of assets. Trap: the ability to withdraw fees beyond a small amount, or holding client passwords/checks, can constitute custody.

Exempt Security

A security that does not need to register at the state level, such as U.S. government and municipal bonds, bank securities, and certain insurance company securities. The security itself is exempt regardless of who sells it.

Exempt Transaction

A sale that escapes registration because of how or to whom it is made, such as isolated nonissuer sales, private placements, or sales to institutional buyers. Trap: the exemption attaches to the transaction, not the security, so it must be re-evaluated each sale.

Federal Covered Adviser

An adviser registered (or required to register) with the SEC rather than the states, generally those with at least $100 million in assets under management (mandatory SEC registration at $110 million) or that advise registered investment companies. Trap: states cannot require them to register but can require a notice filing and collect fees.

Federal Covered Security

A security exempt from state registration because it is covered by federal law, such as exchange-listed stocks and most mutual fund shares. States may still require notice filings and fees but cannot impose merit review.

Fiduciary Duty

The legal obligation of an investment adviser to act in the client's best interest, placing the client's interests above the adviser's own and fully disclosing conflicts. This is a higher standard than the suitability duty historically applied to agents.

Form ADV

The form advisers use to register; Part 1 holds business and disciplinary information for regulators, and Part 2 is the plain-English disclosure brochure for clients.

Fraud

Any intentional misstatement or omission of a material fact, or deceptive scheme, in connection with the offer or sale of a security. Under state law antifraud rules apply even to exempt securities and exempt transactions.

Investment Adviser (IA)

A person who, for compensation, is in the business of advising others about securities, including issuing reports or analyses. The ABC test (Advice, Business, Compensation) determines who qualifies.

Investment Adviser Representative (IAR)

An individual associated with an investment adviser who gives advice, manages accounts, solicits clients, or supervises those who do. Purely clerical or administrative staff are excluded.

Investment Contract (Howey Test)

An arrangement counts as a security when there is an investment of money in a common enterprise with the expectation of profit derived primarily from the efforts of others. This four-part test catches many non-traditional offerings.

Material Information

A fact a reasonable investor would consider important in making a decision. Omitting or misstating material information is the core of most fraud and disclosure violations.

NSMIA (National Securities Markets Improvement Act of 1996)

The federal law that divided regulatory authority between the SEC and the states, creating the federal covered adviser and federal covered security categories. It eliminated duplicate registration in those areas.

Person

A broad legal term covering individuals, corporations, partnerships, trusts, and government bodies. Trap: it does not include a deceased individual, a minor, or someone declared legally incompetent.

Registration by Coordination

A state registration that runs alongside a federal SEC registration for the same offering, becoming effective at roughly the same time the federal registration clears. Common for IPOs sold across multiple states.

Registration by Notification (Filing)

A streamlined state registration method for established issuers meeting financial and history requirements, where registration becomes effective largely by filing rather than full review.

Registration by Qualification

The most demanding state registration method, requiring full disclosure and Administrator review, used when no other method applies; effectiveness occurs when the Administrator so orders.

Rescission

The remedy requiring a seller who violated the law to buy back the security, refunding the price plus interest, less any income received. An offer of rescission, if not accepted within a set window, can extinguish the buyer's right to sue.

Security

A broad investment instrument such as a stock, bond, note, investment contract, or option that involves an investment of money in a common enterprise with profit expected from others' efforts. Trap: fixed insurance products, commodities futures, and collectibles are generally NOT securities.

Statute of Limitations

The deadline for bringing an action; under the Uniform Securities Act civil suits must generally be filed within the earlier of two years after discovery or three years after the sale, and criminal cases within five years.

Unethical Business Practices

Conduct prohibited by the Administrator even without proof of fraud, such as churning, unsuitable recommendations, commingling, and unauthorized trading. These violations can lead to discipline regardless of client harm.

Uniform Securities Act (USA)

The model state-securities law that individual states adapt into their own statutes; it is the framework the Series 66 tests at the state level. Trap: it is a model act, not federal law, so each state's actual rules can differ slightly.

529 Plan

A tax-advantaged education savings plan where earnings grow tax-deferred and qualified education withdrawals are tax-free. Contributions are after-tax and treated as completed gifts for tax purposes.

Alpha

The portion of an investment's return above or below what its risk level would predict, often viewed as the value added by a manager. Positive alpha means outperformance relative to expectations.

Asset Allocation

Dividing a portfolio among asset classes such as stocks, bonds, and cash to balance risk and return. Strategic allocation sets long-term targets, while tactical allocation makes short-term shifts.

Beta

A measure of a security's volatility relative to the overall market; a beta of 1 moves with the market, above 1 is more volatile, below 1 is less. It captures systematic (market) risk.

Capital Gain

The profit from selling an asset above its cost basis; gains on assets held more than a year are long-term and taxed at lower rates than short-term gains, which are taxed as ordinary income.

Defined Benefit Plan

An employer retirement plan that promises a specified payout at retirement, with the employer bearing the investment risk. Contrast with a defined contribution plan where the employee bears the risk.

Defined Contribution Plan

A retirement plan such as a 401(k) where contributions are defined but the final benefit depends on investment performance, placing the investment risk on the employee.

Diversification

Spreading investments across many holdings to reduce the impact of any single one. It addresses unsystematic (company-specific) risk but cannot eliminate systematic (market) risk.

Dollar-Cost Averaging

Investing a fixed dollar amount at regular intervals regardless of price, which buys more shares when prices are low and fewer when high. It tends to lower the average cost per share over time.

Efficient Frontier

The set of optimal portfolios offering the highest expected return for each level of risk under Modern Portfolio Theory. Portfolios below the line are inferior because more return is available at the same risk.

Future Value

The amount a current sum will grow to over time at an assumed rate of return, reflecting the effect of compounding.

Investment Objective

The client's primary financial goal, such as income, growth, preservation of capital, or speculation, which drives the product and strategy chosen. A client can hold more than one, sometimes in tension.

Modern Portfolio Theory (MPT)

A framework holding that investors can build portfolios maximizing expected return for a given level of risk by combining assets that do not move identically. It focuses on the portfolio as a whole rather than individual securities.

Present Value

The current worth of a future sum of money, discounted at an assumed rate of return. It answers how much you would need today to reach a future amount.

Required Minimum Distribution (RMD)

The minimum amount that must be withdrawn annually from most tax-deferred retirement accounts once the account owner reaches the required age. Trap: Roth IRAs have no RMDs during the original owner's lifetime.

Risk Tolerance

The amount of volatility and potential loss a client is willing and able to accept. Trap: distinguish willingness (emotional) from capacity (financial ability to absorb loss).

Roth IRA

A retirement account funded with after-tax dollars where qualified withdrawals, including earnings, are tax-free. Trap: contributions are phased out at higher incomes and there is no upfront deduction.

Sharpe Ratio

A measure of risk-adjusted return calculated as return above the risk-free rate divided by the portfolio's standard deviation. A higher ratio means more return earned per unit of total risk.

Standard Deviation

A statistical measure of how widely an investment's returns vary around their average, used as a proxy for total risk or volatility. A larger standard deviation means a wider, less predictable range of outcomes.

Suitability

The requirement that recommendations fit the client's financial situation, objectives, risk tolerance, and needs based on collected client information. For advisers this is folded into the broader fiduciary best-interest duty.

Systematic Risk

Market-wide risk that affects nearly all securities and cannot be removed through diversification, including interest rate, inflation, and broad market risk. Beta measures exposure to it.

The full glossary

Every term the Series 66 tests — organized by unit, exam traps flagged: