Reference print me
Cheat Sheet
Every domain boiled down to one screen. The lines that cut twenty pages. Print it, screenshot it, study it on the train. Works offline.
Stage 1 30% Laws & Regulations
The whole domain in one breath
- Fee = IA. Commission = BD. Find the word, move on.
- Excluded = the law never saw you. Exempt = it sees you and waves you through.
- Anti-fraud reaches everyone. Exemption from registration is not exemption from fraud.
- Fiduciary beats suitable. "It was suitable" is the broker floor, not the adviser ceiling. Pick the higher duty.
- Disclose plus informed consent flips a conflict from gotcha to allowed. Hidden is the violation.
- Administrator denies, suspends, revokes, and can cease-and-desist without a hearing. Courts jail, the Administrator does not.
- Private placement is an exempt TRANSACTION, not an exempt security. The deal is exempt, not the instrument.
- Cross $110M and you must go federal. Fall well below $100M and you go back to the state. The buffer does not let you stay forever. Verify figures against current NASAA material.
Quick reference
- Fee means IA, commission means BD. Find the operative word and move on.
- ABC test for an IA: Advice, Business, Compensation. All three required.
- Excluded = never an adviser in the eyes of the law. Exempt = an adviser who skips registration.
- LATE crowd (Lawyers, Accountants, Teachers, Engineers) is excluded only when advice is solely incidental and there is no special pay.
- Under $100M AUM register with the state. $100M and up register with the SEC. Verify the buffer against current NASAA material.
- A federal covered adviser does not register with a state, but the state can require a notice filing and keeps anti-fraud authority.
- Fiduciary duty (loyalty plus care, best interest, full disclosure) is a higher bar than broker suitability.
- Prohibited practices share a tell: putting the adviser, firm, or commissions ahead of the client (churning, front running, commingling, borrowing from a client).
- Magic wrong words: guarantee, no risk, can't lose, promise. Guaranteeing a client against loss is prohibited.
- Form ADV Part 1 is for regulators, Part 2 (the brochure) is for clients, delivered up front and annually. Late delivery can create a right to rescind. Verify timing against current NASAA material.
- Custody triggers a qualified custodian, surprise exams, and client statements. Automatic fee deduction can itself count as custody.
- Anti-fraud reaches everyone, including exempt securities and federal covered advisers. Disclosure plus informed consent before the transaction makes many conflicted actions permissible.
- Administrator powers: deny, suspend, revoke, cancel, bar, issue cease-and-desist (no hearing needed), subpoena, stop orders. Courts impose prison. The Administrator does not.
- Exempt security (government, municipal, bank, nonprofit, short-term commercial paper) vs exempt transaction (isolated nonissuer, private placement, institutional, fiduciary/executor). Anti-fraud still applies to both.
- Private placement is an exempt TRANSACTION, not an exempt security. Mixing those two is the most common Domain 1 miss.
- Mid-size advisers (roughly $25M to $100M) generally register with the state. The $100M to $110M buffer lets you elect; cross the top and you must go federal. Verify against current NASAA material.
- De minimis: an adviser with no place of business in a state and only a small number of clients there may be exempt from that state's registration. Verify the exact client count against current NASAA material.
Mnemonics
LATELawyers, Accountants, Teachers, Engineers. The classic exclusions, when advice is solely incidental and there is no special pay.
ABCAdvice, Business, Compensation. All three and you are an IA. Miss one and you are not.
$100MUnder it, state. Over it, SEC. The buffer near the line lets you choose.
LOYAL + CAREFiduciary duty = loyalty (client first, disclose conflicts) plus care (best interest, ongoing, professional skill).
ADV 1 / 2Part 1 is for regulators. Part 2, the brochure, is for clients.
D+CDisclose and Consent. The combination that makes many conflicted actions allowed.
DSCBIDeny, Suspend, Cancel, Bar, Issue (cease-and-desist). The Administrator's enforcement toolkit. Courts do the jailing.
ET vs ESExempt Transaction = the deal is exempt. Exempt Security = the instrument is exempt. Private placement is a transaction exemption, not a security exemption.
Stage 2 25% Investment Vehicles
The whole domain in one breath
- Who bears the investment risk? That one question settles nearly every annuity item. Holder bears it = security. Insurer bears it = insurance product.
- Run Howey on any weird object: money into a common enterprise, expecting profit from someone else's effort = security, whatever the wrapper. The cow, the whiskey barrel, the orange grove - the wrapper is a costume.
- Exempt security is still a security. It just skips registration. If an answer says 'a Treasury is not a security,' that answer is wrong.
- An IRA or 401(k) is a container, not a security. What you stuff inside it might be. The account wrapper is not the thing inside the account.
- Market order = execution guaranteed, price is NOT. Limit order = price guaranteed, execution is NOT. A stop order, once triggered, becomes a MARKET order. Stop-limit becomes a limit order but can go unfilled.
Quick reference
- The Howey test: (1) investment of money, (2) common enterprise, (3) expectation of profit, (4) from the efforts of someone else. All four = investment contract = security.
- Howey ignores the wrapper. Whiskey barrels, orange groves, cow herds: if the scheme fits all four prongs, the object is irrelevant.
- No written contract is required under Howey. Economic reality decides it, not paperwork.
- Named securities under the Act (no Howey needed): stock, bonds, notes, debentures, investment contracts, warrants, options on securities, voting-trust certificates.
- NOT securities: fixed annuities, whole life, term life, raw commodities, currency, precious metals held directly, collectibles, real estate owned directly, IRAs and 401(k)s as account wrappers.
- Fixed annuity: insurer bears the investment risk = insurance product, insurance license only.
- Variable annuity: holder bears the investment risk = security, requires securities registration AND insurance license.
- Variable life insurance: holder bears investment risk on cash value = security. Whole life and term life: insurer controls it = not securities.
- Exempt securities are still securities: US Treasuries, federal government bonds, municipal bonds, bank-issued securities, short-term commercial paper. They skip registration, not the fraud rules.
- Verify commercial paper maturity threshold (roughly 270 days / 9 months) against current NASAA material.
- Anti-fraud provisions reach exempt securities. Exemption from registration is not exemption from fraud.
- An IRA or 401(k) is a tax wrapper (container), not a security. The investments inside may be securities; the account itself is not.
- Market order: executes immediately at the best available price. Guarantees execution, NOT price.
- Limit order: sets the worst acceptable price (buy at or below, sell at or above). Guarantees price, NOT execution.
- Stop order (stop-loss): a trigger price that, once touched, converts to a MARKET order. Fill price is not guaranteed.
- Sell stop sits below the current price (limits downside). Buy stop sits above the current price (enters a breakout or covers a short).
- Stop-limit order: once triggered, becomes a LIMIT order. Price is protected but the order can go completely unfilled in a fast market.
- Day order: expires at the close if unfilled. GTC (good til canceled): stays open until filled or canceled.
- Short selling: selling borrowed shares expecting a price drop. Profit is capped at 100% (stock goes to zero). Loss is theoretically unlimited (no ceiling on price).
Mnemonics
HOWEYHard cash invested, Others run it, With a common enterprise, Expect profit, You don't do the work. All four prongs or it is not an investment contract. The prongs: (1) investment of money, (2) common enterprise, (3) expectation of profit, (4) from the efforts of someone else.
RISK = LABELWho holds the investment risk tells you the legal label. Holder holds it = security. Insurer holds it = insurance. One question, dozens of answers.
CONTAINER ≠ CONTENTSAn IRA or 401(k) is a container. The account itself is not a security. The stocks and funds inside it may be. Never confuse the wrapper for what is in the wrapper.
EXEMPT ≠ NOT A SECURITYExempt securities (Treasuries, munis, bank securities, short-term commercial paper) are still securities. They just skip registration. Anti-fraud rules still apply.
MARKET = EXECUTION, LIMIT = PRICEMarket order: you WILL get filled, you WON'T know the exact price. Limit order: you KNOW the price, you MAY NOT get filled. Stop = trigger that fires a market order. Stop-limit = trigger that fires a limit order (price protected, fill not guaranteed).
STOPS: SELL BELOW, BUY ABOVESell stop sits BELOW the current price (protect against a drop). Buy stop sits ABOVE the current price (enter a breakout or cover a short). Both become market orders when triggered.
Stage 3 30% Recommendations & Strategies
The whole domain in one breath
- Suitable beats impressive. The profile can override what the client asks for. If what they want clashes with who they are, you address it, not just place the trade.
- Diversification only kills unsystematic (company-specific) risk. Market risk hits everyone, even the perfectly diversified portfolio.
- Beta = market risk only. Standard deviation = total risk (market plus company-specific). A low-beta stock can still be wildly volatile on its own news.
- Dollar-cost averaging lowers your average cost per share below the average price. Fixed dollars, not fixed shares, is what makes the math work.
Quick reference
- Suitability and best interest can override the client's stated wish. Profile beats impulse.
- Growth vs preservation, income vs tax efficiency, liquidity vs return: no client gets all three dials maxed at once.
- Systematic (market) risk: interest-rate, inflation / purchasing-power, reinvestment. Undiversifiable. Hits everyone.
- Unsystematic (specific) risk: business, credit / default, liquidity. Diversification kills it.
- Beta measures market risk only. Standard deviation measures total risk. Low beta does not mean low total volatility.
- Alpha is return above what beta predicted. Positive alpha means the manager added value.
- Correlation: lower is better for diversification. Perfectly correlated holdings give you no new protection.
- Sharpe ratio = return per unit of risk (standard deviation). Same return, less volatility wins.
- CAPM: you get paid for systematic (beta) risk only. Unsystematic risk is free to diversify away, so no risk premium for it.
- Strategic allocation is the long-term target. Tactical allocation is short-term tilts. Rebalancing keeps you at target.
- Dollar-cost averaging: fixed dollars, not fixed shares. Average cost per share comes out below average price. No guarantee of profit.
- Long-term capital gains (over 1 year) taxed at lower rate. Short-term taxed as ordinary income. Verify holding period against current NASAA material.
- Tax-equivalent yield = muni yield divided by (1 minus tax bracket). High-bracket clients benefit most. Run the math, do not assume.
- Traditional IRA / 401k: deduction now, taxes on withdrawal. Roth: no deduction, tax-free qualified withdrawals. Roth avoids RMDs during owner's lifetime. Verify RMD age and limits against current NASAA material.
- Wash-sale rule disallows the loss when you buy the same or substantially identical security within the window before or after the sale. Disallowed loss adds to new cost basis.
Mnemonics
Profile firstObjectives, Time horizon, Risk tolerance, Liquidity needs, Tax status, Net worth and income. Every suitability question is one of these in disguise.
SYS vs UNSYSSystematic risk (market, interest-rate, inflation / purchasing-power, reinvestment) = cannot diversify away. Unsystematic risk (business, credit / default, liquidity) = diversification kills it.
Beta vs StdDevBeta = market risk only. Standard deviation = total risk (market plus specific). Low beta does not mean low volatility overall.
Sharpe = bang per buckSharpe ratio = return per unit of total risk. Higher Sharpe wins. Same return, lower standard deviation = better Sharpe.
DCA mathFixed dollars buy more shares cheap and fewer shares expensive. Average cost per share ends up below average price. This is the whole point.
Roth vs TraditionalTraditional: deduction now, taxed later. Roth: no deduction now, tax-free qualified withdrawals later. Roth skips RMDs during the owner's lifetime.
Wash-sale windowBoth sides of the sale date, not just after. Disallowed loss shifts into the new cost basis, not destroyed.
Stage 4 15% Economic Factors
The whole domain in one breath
- Monetary = the Fed. Fiscal = Congress. Cut taxes? Fiscal. Buy Treasuries? Monetary. The exam will try to swap them.
- CPI and unemployment duration are LAGGING. That is the favorite gotcha in this domain. They feel current, they are not.
- Fed buys bonds = money supply up = rates down. Reverse every word to tighten. The whole easy/tight chain hangs on that one direction.
- Inverted yield curve means short-term rates are above long-term rates. That is the classic recession warning. Normal slopes up. Inverted slopes down.
Quick reference
- Business cycle order: expansion, peak, contraction, trough, repeat. Recession = 2 consecutive quarters of falling real GDP. Depression = deeper and longer version of the same.
- Leading indicators predict the future: stock prices, building permits, new manufacturing orders, money supply, consumer expectations.
- Coincident indicators track the present: GDP, industrial production, personal income.
- Lagging indicators confirm the past: average duration of unemployment, CPI, corporate profits, prime rate. CPI is LAGGING, not leading.
- Monetary policy = the Fed (FOMC). Tools: open market operations (day-to-day), discount rate, reserve requirements (most powerful, least used).
- Fiscal policy = Congress and the President. Tools: taxes and government spending. The Fed never touches taxes.
- Easy money: Fed buys bonds, money supply up, rates down, economy stimulated. Tight money: Fed sells bonds, money supply down, rates up, inflation cooled.
- Fed funds rate = banks charge each other overnight. Discount rate = Fed charges banks directly. Prime rate = banks charge best corporate customers. Prime tracks fed funds.
- Yield curve normal = upward slope, healthy. Inverted = short rates above long rates, downward slope, recession warning. Flat = transition or uncertainty.
- Stagflation = stagnant growth plus high inflation at the same time. Hard to fix because cures for one hurt the other.
- Strong dollar = imports cheaper, exports more expensive (hurts exporters). Weak dollar = imports expensive, exports cheaper and competitive abroad.
- Reserve requirement is the most powerful Fed tool and the most rarely used. Open market operations are the everyday workhorse.
- Keynesian = government manages demand, spends more in downturns. Supply-side = cut taxes, control money supply, let markets work. Both are fiscal/monetary theory, not the same as one policy tool.
- ⚠ Verify exact GDP threshold numbers, indicator list specifics, and yield curve recession-signal conventions against current NASAA material before the exam.
Mnemonics
Expansion - Peak - Contraction - TroughThe business cycle, in order, running like a clock. After the peak you go DOWN. After the trough you go UP. Two consecutive quarters of declining real GDP = recession.
FCP = Future, Current, PastLeading indicators = Future (they predict). Coincident = Current (they track now). Lagging = Past (they confirm after). Sort every indicator into one of these three buckets.
CPI and Unemployment LagCPI and the average duration of unemployment are both LAGGING. They feel timely. They are not. Corporate profits and the prime rate also lag.
Buy = Easy = Down (rates)Fed buys bonds, money supply up, rates down. Fed sells bonds, money supply down, rates up. Every link in the chain flips together.
Fed = Money, Congress = TaxesMonetary policy lives at the Fed (FOMC, open market operations, discount rate, reserve requirements). Fiscal policy lives with Congress and the President (taxes and spending). Never mix the two.
Strong dollar, cheap importsStrong dollar = imports cheap, exports expensive. Weak dollar = imports expensive, exports cheap and competitive. The strong currency always hurts the home country's sellers abroad.