Series 6 Cheatsheet — Mutual Funds, Variable Products, 529 Plans & High-Yield Math

Use this alongside the Syllabus and Practice. Series 6 is “packaged products + process”: know the math, then pick the best disclosed, documented, suitable next step.

Exam map (where points come from)

Series 6 at a glance (FINRA)

• Items: 50 scored + 5 unscored (55 total)
• Time: 1 hour 30 minutes (90 minutes)
• Passing score: 70 (scaled)

Job functions and weights

Series 6 “best answer” checklist (use on every scenario)

1. Who is the customer? objective, horizon, risk tolerance, liquidity needs, tax status, experience
2. What is being recommended? product + share class + account type + “hold”/exchange/switch/rollover
3. What are the real costs? loads/CDSC, 12b-1, VA fees/M&E, riders, surrender charges
4. What must be delivered/disclosed? prospectus/plan disclosure, material risks, fees, surrender schedule, conflicts
5. What is the safest compliant next step? gather facts, disclose, document, escalate, or refuse

Communications and prospecting (F1)

Communication types (FINRA-style)

• Retail communication: to retail investors; usually needs principal approval and strict “fair and balanced” standards.
• Institutional communication: for institutional audiences; supervision rules differ (still must not mislead).
• Correspondence: messages to one or more retail investors (email, letters, many digital messages); supervision/retention still applies.

High-yield “don’t get tricked” rules

• Don’t promise returns or imply guarantees that don’t exist (especially for variable products and funds).
• Present risks and costs as prominently as benefits.
• If a piece uses rankings/ratings, the “best answer” often includes required disclosures (source, time period, category, limitations).
• Variable product communications must be consistent with the product’s disclosure documents and must not minimize surrender charges or rider limitations.

Prospectuses vs sales literature (exam framing)

• Prospectus: primary disclosure document; delivery concepts are tested frequently.
• Sales literature/ads: still must be fair and balanced and often requires firm approvals before use.

Offerings and prospectus basics (Series 6 level)

• Registered public offering: sold with required disclosures (prospectus).
• Private placement / exempt offering: sold under an exemption; still requires fair disclosure, suitability/best interest analysis, and firm due diligence.
• Preliminary vs final prospectus: questions may test “what document do you deliver?” and whether information is current and complete.
• Due diligence: the firm must have a reasonable basis for offering/recommending a product (especially true for complex packaged products).

Account opening, CIP/KYC and privacy (F2)

CIP/AML (customer identification) — high-yield checklist

• Collect required identifiers (typical): name, date of birth (individual), address, ID number.
• Verify identity via documentary/non-documentary methods (firm process).
• Screen and escalate red flags (including sanctions checks via firm process).
• Recordkeeping: retain required records and document exceptions.

KYC / investment profile (what drives suitability)

Series 6 expects you to recognize “missing profile” scenarios and choose the next step: gather facts before recommending.

• other holdings and concentration
• income/net worth/assets/liabilities
• tax status and account type (taxable vs tax-advantaged)
• objective and time horizon
• liquidity needs
• risk tolerance and experience

Privacy (Reg S-P) (high level)

• Deliver initial privacy notices and provide opt-out where required.
• Safeguard personal information; share it only as permitted by policy and law.

Common account documentation and authority

• POA: trading authority; not automatically discretionary.
• Discretionary account: requires written authorization and heightened supervision.
• Trust/corporate accounts: authority comes from trust docs/corporate resolutions and authorized signers.
• Third-party instructions (mailings, checks, etc.): often require written authorization and firm controls.

Retirement and tax-advantaged accounts (high level)

Series 6 can test this conceptually (not deep plan law).

• Common plan types: IRA, Roth IRA, 401(k), 403(b), 457, defined benefit, profit-sharing, non-qualified deferred compensation (fact pattern driven).
• Transfer vs rollover: direct custodian-to-custodian movement is usually cleaner than indirect rollover scenarios (deadline/withholding risk).

Suitability and Reg BI (F2/F3)

Suitability layers (Series 6 loves this)

• Reasonable-basis: is the product/strategy suitable for at least some customers?
• Customer-specific: is it suitable for this customer’s profile?
• Quantitative: is the overall pattern of activity excessive for the objective (less common on Series 6 than Series 7, but shows up conceptually)?

Reg BI mindset (high level)

Exam questions typically frame this as: recommendations must be in the retail customer’s best interest, considering costs, risks, and reasonable alternatives, and conflicts should not drive the recommendation.

The “best answer” is often a process step

When a question asks “what should the representative do next?”, the best answer is frequently:

• gather missing profile facts before recommending
• deliver required disclosure (prospectus/plan disclosure) before/at sale
• disclose costs and liquidity limits (loads/CDSC, 12b-1, VA fees, surrender charges)
• document rationale and obtain required approvals
• escalate red flags (e.g., possible exploitation, suspicious activity, unsuitable concentration)

Suitability drivers by product (Series 6 focus)

    flowchart TD
	  A["Customer asks about an investment"] --> B{Do we have a complete profile?}
	  B -->|"No"| C["Gather KYC: objective, horizon, liquidity, risk, tax, experience"]
	  B -->|"Yes"| D{Is this a recommendation?}
	  D -->|"No"| E["Provide factual information; follow firm controls and disclosures"]
	  D -->|"Yes"| F["Compare options: costs, risks, liquidity limits, alternatives"]
	  F --> G{Any red flags or missing disclosures?}
	  G -->|"Yes"| H["Disclose/document/escalate or refuse if required"]
	  G -->|"No"| I["Proceed and document best-interest rationale"]

Portfolio concepts and basic analysis (F3 foundations)

• Diversification reduces nonsystematic risk; it can’t eliminate market/systematic risk.
• Correlation drives how diversification changes portfolio volatility (lower correlation → better diversification).
• Beta: market sensitivity (higher beta → more volatile relative to the market).
• Alpha: excess return relative to a benchmark (conceptual).
• CAPM: concept linking expected return to systematic risk (beta).
• Financial statements: income statement, balance sheet, cash flow statement (purpose and basic interpretation).
• Inventory methods: FIFO vs LIFO (effects are conceptual).
• Depreciation affects accounting earnings; questions may test the concept, not the mechanics.

Packaged products overview (what Series 6 is really about)

Quick comparison table (test-friendly)

Open-end mutual funds

• Redeem with the fund; priced once per day at NAV (forward pricing).
• Distributions can include income, capital gains, and return of capital (facts drive).

Closed-end funds

• Issued in the primary market; then trade intraday on an exchange.
• Can trade at a premium/discount to NAV.

$$ %\text{Premium/Discount} = \frac{\text{Market Price} - \text{NAV}}{\text{NAV}} $$

ETFs (high level)

• Trade intraday like stock; often more tax efficient than mutual funds (creation/redemption concept).
• Best for customers who want intraday pricing and potentially lower cost (fact pattern driven).

UITs (unit investment trusts)

• Fixed portfolio for a set period; typically no active management.
• Redeemable units; liquidity and pricing depend on product structure.

Interval funds (high level)

• Offer periodic repurchases; liquidity is limited versus traditional open-end funds.
• Often tested as a “liquidity mismatch” trap.

Money market funds

• Seek liquidity/stability, but are not risk-free (credit/liquidity risk still exists).
• Retail vs institutional distinctions can appear in concept questions.

Mutual funds — must-know math and mechanics

NAV

$$ \text{NAV} = \frac{\text{Assets} - \text{Liabilities}}{\text{Shares Outstanding}} $$

POP (front-end load) and sales charge

Let $c$ = sales charge rate as a decimal (e.g., 5% = 0.05).

$$ \text{POP} = \frac{\text{NAV}}{1 - c} $$

$$ \text{Sales Charge} = \text{POP} - \text{NAV} $$

Sales charge percentage (POP-based):

$$ c = \frac{\text{POP} - \text{NAV}}{\text{POP}} $$

Mini-example: NAV 20.00, front-end load 5% ⇒ POP = 20 / 0.95 = 21.05.
Sales charge ≈ 1.05/share.

Shares purchased (common “how many shares?” question)

$$ \text{Shares} = \frac{\text{Dollars Invested}}{\text{POP}} $$

Mini-example: invest 10,000 at POP 21.05 ⇒ shares ≈ 10,000 / 21.05 ≈ 475.06 shares.

Breakpoints, ROA, LOI (high yield)

• Breakpoint: reduced sales charges at higher purchase levels.
• Right of accumulation (ROA): count existing holdings to reach breakpoint.
• Letter of intent (LOI): intent to invest a target amount over a period to receive breakpoint pricing now (conditions apply).

Series 6 “trap”: the best answer often involves checking eligibility (which accounts count, whether the customer already has holdings, and what documentation is required).

Breakpoint sales practice reminder (exam style):

• If the customer qualifies for a breakpoint, the “best answer” is usually to apply it (or obtain the documentation needed to apply it).
• Don’t ignore ROA/LOI if the scenario clearly indicates they apply.

Dollar-cost averaging (DCA)

• DCA is periodic investing of equal dollars; it can lower average cost per share when prices fluctuate.
• Unsuitable if the customer cannot reasonably complete the plan or needs liquidity soon.

Average cost per share (sometimes tested):

$$ \text{Avg Cost per Share} = \frac{\text{Total Dollars Invested}}{\text{Total Shares Owned}} $$

Forward pricing, cutoff times, and “late trading”

• Forward pricing: orders execute at the next computed NAV after the order is received.
• Late trading: obtaining an earlier NAV after the cutoff is prohibited.
• Market timing: frequent trading to exploit pricing; fund policies may restrict it.

    flowchart TD
	  A["Mutual fund order received"] --> B{Received before the cutoff?}
	  B -->|"Yes"| C["Priced at today's next computed NAV"]
	  B -->|"No"| D["Priced at next business day's NAV"]
	  C --> E["Confirm + recordkeeping"]
	  D --> E

Redemptions and payout plans (high level)

• Open-end redemptions are at NAV, less any applicable CDSC.
• Systematic withdrawal plans: periodic redemptions; can include return of capital depending on performance and timing.
• Reinvested distributions still have tax consequences in taxable accounts (fact pattern driven).

Redemption proceeds (exam-friendly, concept)

$$ \text{Redemption Proceeds} \approx (\text{Shares} \times \text{NAV}) - \text{Any Applicable CDSC} $$

CDSC base can vary by fund/share class; questions will often specify whether it’s based on original cost, current value, or another definition.

Share classes and fees (Series 6 loves cost comparisons)

Key cost vocabulary:

• Front-end load: paid at purchase.
• CDSC/back-end load: paid if shares are redeemed during a schedule.
• 12b-1 fee: annual distribution/marketing fee; can materially change long-run cost.
• Expense ratio: annual operating costs as a percent of assets (conceptual).

Share class “fit” intuition (exam style):

• short holding period → watch CDSCs and total fees; avoid long break-even
• long holding period → watch ongoing 12b-1 drag; compare long-run total cost
• always disclose the costs and restrictions that drive the recommendation

Common share class patterns (high level; names vary by fund family):

• A shares: front-end load; typically lower ongoing distribution fees.
• C shares: level-load / higher ongoing 12b-1; often no front-end load but higher long-run drag.
• B shares: historically back-end load with potential conversion; may still appear in exam-style concepts even if less common in the market.

Taxes for funds and variable products (high-yield)

• Mutual fund distributions: can be ordinary income and/or capital gains; taxable in taxable accounts even if reinvested.
• Return of capital: reduces cost basis (not “free yield”).
• Variable annuity growth: tax-deferred; withdrawals are typically taxed as ordinary income on gains (fact pattern driven).
• Wash sale concept: selling at a loss and repurchasing substantially identical securities in the window can disallow the loss (high level).
• Holding period matters for gain classification (conceptual).

Variable annuities (VAs) — the core framework

Separate account and contract value (concept)

$$ \text{Accumulation Value} = \text{Accumulation Units} \times \text{Unit Value} $$

Key idea: subaccounts are in a separate account and values fluctuate; guarantees (if any) are feature- and rider-specific.

Accumulation vs annuitization (what changes)

• Accumulation phase: contract value fluctuates; surrender charges and riders apply.
• Annuitization phase: value is converted into payments; you choose a payout option.

Conceptual payout representation:

$$ \text{Payment} \approx \text{Annuity Units} \times \text{Annuity Unit Value} $$

Common VA fees (Series 6 vocabulary)

• M&E (mortality and expense)
• administrative fees
• underlying subaccount expenses
• rider fees (living benefits, enhanced death benefits)
• surrender charges (declining schedule)

If a question asks “what must be disclosed?” the answer is usually: all-in costs + surrender schedule + material rider limits.

Surrender charges and surrender value (concept)

$$ \text{Surrender Value} \approx \text{Accumulation Value} - \text{Surrender Charge} - \text{Any Other Applicable Charges} $$

Exam framing: surrender charges create liquidity risk and can make short-horizon recommendations unsuitable.

Annuitization payout options (high level)

• life only (highest payment, no survivor)
• life with period certain
• joint and survivor

Exam logic: payout options trade off payment size vs survivor protection.

AIR (assumed interest rate) (high level)

• AIR is a baseline used in variable payout calculations.
• If performance is above AIR, payments tend to rise; if below AIR, payments tend to fall (conceptual).

Tax logic (high level)

• Growth is tax-deferred; withdrawals are generally taxed as ordinary income on gains (fact pattern matters).
• Early withdrawals can trigger additional penalties depending on age and circumstances.
• A 1035 exchange can be tax-deferred, but suitability must consider new surrender charges, fees, and loss of benefits.

Living benefits vs death benefits (high level)

• Death benefit riders: focused on beneficiaries (e.g., GMDB concepts).
• Living benefit riders: focused on the owner/annuitant (income/withdrawal guarantees; limitations vary).
• Exam trap: riders add cost and constraints; the “best answer” often requires explaining tradeoffs, not just naming the rider.

VA exchange (replacement) red flags

• new surrender period without a clear benefit
• higher total fees or loss of valuable guarantees
• “bonus” that is offset by higher ongoing charges
• switching primarily for compensation (conflict)

    flowchart TD
	  A["Customer considering a VA exchange"] --> B{Is there a clear customer benefit?}
	  B -->|"No"| C["Avoid exchange; document why it isn't in the customer's best interest"]
	  B -->|"Yes"| D{Compare old vs new: fees, riders, surrender, benefits}
	  D --> E["Disclose tradeoffs + document suitability + obtain required approvals"]

Variable life (high level)

• Premium flexibility can create lapse risk if funding is insufficient.
• Cash value and death benefit can vary with separate account performance (contract-dependent).
• Key risks: cost/fee drag, market risk, and policy lapse risk.

What questions often test:

• whether the customer needs insurance vs investing
• whether the customer can sustain premiums (avoid lapse)
• whether the customer understands market risk in the separate account

Municipal fund securities (529 plans, ABLE, LGIPs)

College savings plans (529) (high level)

• Owner controls the account; beneficiary is the student.
• Questions often test: beneficiary change, rollover, ownership, and tax consequences of unqualified withdrawals.
• Suitability focuses on horizon, fees, investment risk, and state-specific features (fact pattern driven).

Common concept questions:

• Qualified vs unqualified withdrawals (earnings tax/penalty risk in unqualified situations).
• Investment selection: age-based portfolios reduce risk as college approaches but are still market-based.
• State tax benefits: can vary by state and may have recapture rules (fact pattern driven).

ABLE accounts (high level)

• Designed for eligible individuals with disabilities; used for qualified disability expenses (rules vary).
• Suitability focuses on eligibility, fees, permitted uses, and interaction with other goals.

Local government investment pools (LGIPs)

• Cash-management pools; not risk-free.
• Liquidity and portfolio features are product-specific (plan disclosures matter).

Orders, confirmations, and records (F4 “clean points”)

Quotes and order basics (high level)

• Know bid/ask and that execution quality is evaluated under best execution obligations.
• Order tickets should include the essential details (account, security, quantity, price instructions, time-in-force, special instructions).

Best execution “what to consider” (testable list):

• price and total cost (including spreads/fees where applicable)
• likelihood and speed of execution
• size/type of order and market conditions
• customer instructions and product characteristics

Settlement (conceptual)

• Settlement timing rules exist (regular-way settlement concepts).
• Good delivery and accurate confirmations reduce customer harm and operational risk.

Customer communications and recordkeeping (what to remember)

• Confirmations and statements must include key information and be delivered per rules/policies.
• Books and records: keep what the firm needs to supervise and satisfy audit trails.
• Written complaints: capture, retain, and escalate per firm procedure.
• ACATS transfers can be tested conceptually (education/disclosure and process awareness).

Quick formulas (Series 6 math you should do fast)

Glossary (Series 6 terms, fast definitions)

• 12b-1 fee: mutual fund distribution/marketing fee charged annually as part of expenses.
• 1035 exchange: tax-deferred exchange of certain insurance/annuity contracts when requirements are met (suitability still required).
• ABLE account: tax-advantaged account for eligible individuals with disabilities for qualified disability expenses (rules vary).
• Accumulation phase: period before annuitization when a variable annuity grows and surrender charges may apply.
• Accumulation unit: unit measure used to value variable annuity contract value during accumulation.
• Alpha: performance relative to a benchmark; positive alpha implies outperformance (conceptual).
• Annuitant: person on whose life an annuity benefits are based.
• Annuitization: converting an annuity’s accumulated value into a stream of payments.
• Annuity unit: unit measure used to determine variable annuity payments after annuitization.
• Ask (offer): lowest price a seller is willing to accept.
• Basis (cost basis): amount used to compute gain/loss for tax purposes; can be adjusted by distributions and wash-sale rules (high level).
• Beta: market sensitivity; higher beta implies higher volatility relative to the market.
• Best execution: duty to seek the best overall result for customer orders considering price, speed, and other factors.
• Breakpoint: purchase level that qualifies for reduced mutual fund sales charges.
• CAPM: Capital Asset Pricing Model; concept linking expected return to systematic risk (beta).
• CDSC: contingent deferred sales charge; back-end load applied when shares are redeemed within a schedule.
• Closed-end fund: fund whose shares trade on an exchange; price can differ from NAV.
• Conduit/pipeline theory: mutual funds pass through income and realized gains to shareholders via distributions.
• Correspondence: message to one or more retail investors; supervision and retention rules apply.
• Correlation: measure of how two investments move together; lower correlation can improve diversification.
• Cutoff time: time by which mutual fund orders must be received to get that day’s NAV (forward pricing).
• DCA: investing equal dollars on a schedule; may reduce average cost per share in volatile markets.
• Defined benefit plan: employer plan promising a formula-based benefit (high level).
• Defined contribution plan: employer plan where contributions are defined (e.g., 401(k)); retirement benefit depends on contributions and investment results (high level).
• Death benefit: insurance feature paying a benefit to beneficiaries; variable products may have enhanced/guaranteed versions.
• Diversification: spreading investments across assets to reduce nonsystematic risk.
• Expense ratio: annual operating expenses as a percent of fund assets.
• ETF: exchange-traded fund; trades intraday; often uses a creation/redemption mechanism (conceptual).
• Firm commitment: underwriting method where the underwriter buys the issue from the issuer and resells to the public (high level).
• Best efforts: underwriting method where the underwriter agrees to use best efforts to sell but does not guarantee full sale (high level).
• Exchange privilege: ability to switch between funds in a family (restrictions/fees may apply).
• Forward pricing: mutual fund orders price at the next computed NAV after order receipt.
• Free look: period after purchase when certain insurance contracts can be returned (rules vary).
• Front-end load: sales charge paid at purchase; increases POP relative to NAV.
• Fund family: group of mutual funds under one sponsor; used in exchanges and breakpoint aggregation.
• Fund objective: the fund’s stated goal (growth, income, balanced, sector, target date, etc.).
• Gift basis: basis rules for gifted securities (carryover/dual basis concepts can appear in scenarios).
• GMDB: guaranteed minimum death benefit (common variable annuity rider concept).
• GLWB/GMWB: guaranteed lifetime/minimum withdrawal benefit rider concepts (features vary).
• Good delivery: proper delivery that meets uniform practice requirements (conceptual).
• Institutional communication: communication intended for institutional investors; supervision rules differ from retail communications.
• Interval fund: fund with periodic repurchase offers; limited liquidity compared to traditional open-end funds.
• Investment profile: customer’s objectives, horizon, risk tolerance, liquidity needs, tax status, and experience.
• IRA: Individual Retirement Account; tax treatment depends on type (traditional vs Roth) (high level).
• KYC: Know Your Customer; understanding essential facts about the customer and relationship.
• Late trading: executing mutual fund orders at an earlier NAV after the cutoff; prohibited.
• LGIP: local government investment pool; cash-management pool (features vary).
• Liquidity risk: risk you cannot sell/redeem at expected time/price.
• Load: sales charge on mutual fund purchases or redemptions (front-end or back-end).
• LOI: letter of intent; allows breakpoint pricing based on intended future purchases if conditions are met.
• Market timing: frequent trading to exploit pricing; may be restricted; can be improper if it violates fund policy.
• Material risk: risk a reasonable investor would consider important; must be fairly disclosed.
• M&E fee: mortality and expense fee in variable annuities; compensates insurer for guarantees and expenses.
• Money market fund: fund investing in short-term instruments; seeks liquidity/stability but not risk-free.
• Municipal fund security: products such as 529 plans, ABLE accounts, and LGIPs (high level).
• NAV: net asset value; per-share value of fund assets minus liabilities.
• Nonsystematic risk: company/sector-specific risk that diversification can reduce.
• Open-end fund: mutual fund that issues/redeems shares at NAV (plus/minus loads/CDSC).
• POP: public offering price; mutual fund purchase price including any front-end load.
• Portfolio theory: concepts about diversification and risk/return tradeoffs in a portfolio.
• Pretest item: unscored exam item used for exam development; mixed into the exam.
• Prospectus: primary disclosure document describing a registered offering/product.
• Private placement: offering sold under an exemption from registration (e.g., Regulation D); still requires disclosure, suitability/best interest, and firm due diligence (high level).
• Qualified distribution (529/ABLE): withdrawal used for qualified expenses; tax treatment depends on rules and facts.
• Qualified dividend: dividend eligible for favorable tax treatment if holding-period rules are met (conceptual).
• Reg BI: Regulation Best Interest; requires broker-dealer recommendations to be in the retail customer’s best interest.
• Regulation A: SEC exemption framework for certain smaller offerings (high level).
• Regulation D: SEC exemption framework commonly used for private placements (high level).
• Retail communication: communication intended for retail investors; subject to content, approval, and recordkeeping rules.
• Return of capital: distribution that is not income/gains; reduces basis; not the same as yield.
• Rider: optional contract feature (often in variable products) providing additional benefits for additional cost.
• ROA: right of accumulation; counts existing holdings toward breakpoint eligibility.
• Rollover: movement of assets from one retirement arrangement to another; timing/withholding can matter (high level).
• Separate account: insurer account holding variable product subaccount assets separate from the insurer’s general account.
• Share class: mutual fund class with different fee/load structure for the same underlying portfolio.
• Soft dollars: using brokerage commissions to pay for research/services; conflict-of-interest disclosure theme.
• Surrender charge: fee for early withdrawal from certain variable products; typically declines over time.
• Systematic risk: market-wide risk that diversification cannot eliminate.
• Systematic withdrawal plan: plan for periodic mutual fund redemptions; can include return of capital.
• Tax deferral: delaying taxation of investment growth until distribution; key suitability theme for annuities.
• Transfer: custodian-to-custodian movement of assets; often contrasted with an indirect rollover (high level).
• UIT: unit investment trust; fixed portfolio, redeemable units, defined termination (conceptual).
• Unqualified distribution: withdrawal not used for qualified expenses; can trigger taxes/penalties (fact pattern driven).
• Variable annuity: insurance contract with investment subaccounts; tax-deferred growth; fees/limits; may have guarantees.
• Variable life: life insurance with separate account investment performance affecting cash value and death benefit (contract-dependent).