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Series 63 · 20% of the exam

Communication with Customers and Prospects practice questions

10 free Communication with Customers and Prospects questions for the Uniform Securities Agent State Law Exam (Series 63) exam, each with the correct answer and an explanation for every option.

Start the questionsFree 10-question Series 63 quiz

What this domain covers

The second largest Series 63 domain: what agents and advisers may and may not say to customers and prospects, including disclosures, advertising, correspondence and the use of titles.

Exam weight
20%
On a real exam
≈ 13 questions
In our bank
117 questions

Topics that come up most

  • Disclosure of capacity, fees and conflicts of interest
  • Advertising, testimonials and social media
  • Misrepresenting registration or Administrator approval
  • Senior designations and use of professional titles
  • Brochure delivery and performance claims

How to study it

Learn the rule that registration never means the Administrator has approved anyone, then test each scenario for whether a statement could mislead; that line decides most questions here.

Sample Communication with Customers and Prospects questions

Try each one before opening the answer. Original questions written to the official exam objectives.

  1. Question 1

    A broker-dealer receives revenue-sharing payments from a mutual fund's adviser for promoting that fund family. An agent of the firm is about to recommend one of these funds to a retail customer. Which statement best describes the agent's communication obligation?

    • ATell the customer that the arrangement exists and how it gives the firm an incentive to favor this fund
    • BSay nothing further, because the payments are already described in the fund's prospectus and SAI
    • CSay nothing further, because the fund adviser pays the money and the customer bears no extra charge
    • DDiscuss the payments only if the customer specifically asks how the firm is compensated
    Show answer and explanation

    Answer: A) Tell the customer that the arrangement exists and how it gives the firm an incentive to favor this fund

    Revenue-sharing payments are third-party compensation that creates a material conflict of interest. Firms and agents should disclose the arrangement and its effects, and disclosure alone doesn't satisfy the best-interest obligation.

    • ACorrect. Revenue sharing is third-party compensation that creates a conflict of interest. SEC staff guidance says firms and their financial professionals should disclose both the existence and the effects of such incentives. Disclosure alone doesn't satisfy the best-interest obligation, but it is still required.
    • BIncorrect. A general description in the fund's offering documents doesn't relieve the firm and agent of their duty to disclose the firm's own conflict. Revenue sharing is compensation that the prospectus fee table may not show.
    • CIncorrect. What matters is the incentive the payment creates for the firm, not whether the customer pays more. Third-party compensation is a conflict that must be disclosed even when the customer pays nothing extra.
    • DIncorrect. The customer can't be expected to ask about a conflict they don't know exists. Material conflicts must be disclosed on the firm's own initiative.

  2. Question 2

    An agent says a target-date fund "guarantees you'll have enough to retire." This is:

    • AAccurate if the client contributes every year
    • BAccurate, because the fund's mix adjusts with age
    • CMisleading
    • DRequired language from the fund's prospectus
    Show answer and explanation

    Answer: C) Misleading

    • AIncorrect. There's still no guarantee.
    • BIncorrect. That isn't a guarantee.
    • CCorrect. Target-date funds don't guarantee outcomes.
    • DIncorrect. It isn't required.

  3. Question 3

    An agent tells a client a stock will 'definitely double this year.' This is:

    • AA suitability disclosure
    • BA permitted opinion
    • CA misleading prediction
    • DA required forecast
    Show answer and explanation

    Answer: C) A misleading prediction

    • AIncorrect. It is misleading.
    • BIncorrect. It is stated as certain.
    • CCorrect. Predictions can't be stated as facts.
    • DIncorrect. It is misleading.

  4. Question 4

    Before selling a bond from the firm's inventory, an agent tells the client the firm is acting as principal. This is:

    • AUnnecessary
    • BProhibited
    • CMisleading
    • DAppropriate
    Show answer and explanation

    Answer: D) Appropriate

    • AIncorrect. It is material.
    • BIncorrect. It is required disclosure.
    • CIncorrect. It is accurate.
    • DCorrect. Capacity is a material fact.

  5. Question 5

    Under the NASAA model brochure rule, when must a state-registered investment adviser deliver its written disclosure brochure to a prospective advisory client?

    • AAt least 48 hours before entering into the advisory contract, or at signing if the client may terminate without penalty within five business days
    • BWithin 48 hours after the advisory contract is signed, provided the client may terminate without penalty within ten business days
    • CAt least five business days before entering into the advisory contract, with no alternative allowing delivery at the time of signing
    • DOnly when the client makes a written request, after which the adviser must offer an updated brochure annually
    Show answer and explanation

    Answer: A) At least 48 hours before entering into the advisory contract, or at signing if the client may terminate without penalty within five business days

    A state-registered adviser must deliver its brochure at least 48 hours before the advisory contract is signed, or at signing if the client can cancel without penalty within five business days.

    • ACorrect. The NASAA model rule allows delivery not less than 48 hours before the contract is signed, or at the time of signing if the client can end the contract without penalty within five business days.
    • BIncorrect. The brochure must be delivered before or at contracting, not afterward. The penalty-free termination window is five business days, not ten.
    • CIncorrect. This mixes up the two time periods. Advance delivery must be at least 48 hours before signing, and delivery at signing is allowed if the client gets a five-business-day right to terminate.
    • DIncorrect. Initial delivery is required whether or not the client asks. The adviser can't wait for a request before handing over the brochure.

  6. Question 6

    An agent tells a client, "Your account is fully insured by SIPC, so you can't lose money on these stocks." How should this statement be characterized?

    • AMisleading, because SIPC protects customer assets up to set limits if a member firm fails, and it does not cover market declines
    • BAcceptable, provided the firm is a SIPC member and the account's total value stays below $500,000
    • CAcceptable for the cash portion, because SIPC protects cash balances up to $250,000 against any type of loss
    • DMisleading only if the account holds products SIPC excludes, such as unregistered limited partnerships
    Show answer and explanation

    Answer: A) Misleading, because SIPC protects customer assets up to set limits if a member firm fails, and it does not cover market declines

    SIPC protects customers up to $500,000 (including $250,000 cash) when a member broker-dealer fails and assets are missing. It does not insure against market losses, so calling an account 'fully insured against losses' is a misrepresentation.

    • ACorrect. SIPC coverage applies when a member firm fails and customer assets are missing. It is limited to $500,000 per account, including $250,000 for cash, and it does not cover losses from falling market values.
    • BIncorrect. Staying under the $500,000 limit does not change the scope of the protection. SIPC still does not cover losses when securities fall in value, so the claim stays misleading.
    • CIncorrect. The $250,000 cash limit counts toward the $500,000 total and applies only when a failed firm is missing customer assets. It is not protection against any type of loss.
    • DIncorrect. Some products are excluded from SIPC, but the statement is misleading no matter what the account holds, because SIPC never insures against market losses.

  7. Question 7

    Part 2B of an adviser's Form ADV, the brochure supplement, describes:

    • AClient holdings
    • BThe firm's tax returns
    • CAdvisory personnel
    • DFund prospectuses
    Show answer and explanation

    Answer: C) Advisory personnel

    • AIncorrect. That is confidential.
    • BIncorrect. That isn't in the supplement.
    • CCorrect. It covers the individuals who give advice.
    • DIncorrect. That is a separate document.

  8. Question 8

    An agent describes an interval fund as "liquid like a mutual fund." This is:

    • AAcceptable if the agent's firm sells the fund
    • BAccurate, since interval funds redeem shares every day
    • CMisleading, since redemptions are limited to periodic offers
    • DAcceptable if the client has other cash
    Show answer and explanation

    Answer: C) Misleading, since redemptions are limited to periodic offers

    • AIncorrect. It's still misleading.
    • BIncorrect. They don't.
    • CCorrect. Interval funds restrict liquidity.
    • DIncorrect. It's still misleading.

  9. Question 9

    An agent says an emerging markets fund "has no currency risk because it's priced in dollars." This is:

    • AAccurate if the fund is a U.S. fund
    • BAccurate, since dollar pricing removes currency risk
    • CMisleading
    • DAcceptable if the fund hedges some positions
    Show answer and explanation

    Answer: C) Misleading

    • AIncorrect. The holdings are still foreign.
    • BIncorrect. It doesn't.
    • CCorrect. The fund's holdings are still exposed to currency moves.
    • DIncorrect. It's still misleading.

  10. Question 10

    An agent tells a retired client that Treasury Inflation-Protected Securities (TIPS) "can't lose value." How should this statement be viewed?

    • AMisleading, because TIPS market prices can drop when real interest rates rise
    • BAccurate, because the principal of TIPS is adjusted upward for inflation
    • CAccurate, because TIPS are direct obligations of the U.S. government
    • DAcceptable if the agent also mentions that TIPS pay lower coupon rates
    Show answer and explanation

    Answer: A) Misleading, because TIPS market prices can drop when real interest rates rise

    TIPS protect against inflation but not against market risk. Their prices fall when real interest rates rise, and deflation lowers the adjusted principal, so saying they can't lose value is misleading.

    • ACorrect. Like other bonds, TIPS can fall in market value when interest rates rise. Deflation can also lower the adjusted principal and the interest payments. A client who sells before maturity can lose money.
    • BIncorrect. The inflation adjustment protects buying power, but it doesn't stop market prices from falling when real rates rise. The principal is also adjusted down during deflation.
    • CIncorrect. Government backing removes credit risk but not interest-rate (market) risk. TIPS prices still go up and down before maturity.
    • DIncorrect. Disclosing a different feature doesn't fix a false statement that the security can't lose value.

Communication with Customers and Prospects: FAQs

How much of the Series 63 exam is Communication with Customers and Prospects?

Communication with Customers and Prospects is 20% of the Series 63 exam by the official exam guide's weighting, which on a 65-question form works out to roughly 13 questions. The real exam's exact split varies by form.

What does the Communication with Customers and Prospects domain cover?

The second largest Series 63 domain: what agents and advisers may and may not say to customers and prospects, including disclosures, advertising, correspondence and the use of titles.

How should I study Communication with Customers and Prospects for Series 63?

Learn the rule that registration never means the Administrator has approved anyone, then test each scenario for whether a statement could mislead; that line decides most questions here.

Where can I practise more Communication with Customers and Prospects questions?

This page has 10 free Communication with Customers and Prospects questions with answers. The ExamWize Series 63 question bank has 117 questions in this domain. Every practice exam result breaks your score down by domain, and Review Mode re-drills the questions you missed.

Other Series 63 topics

Also: 15 free questions across all topics, the Series 63 cheat sheet and the study guide.

Get Communication with Customers and Prospects exam-ready

The full Series 63 bank has 117 Communication with Customers and Prospects questions. Timed practice exams match the real exam's length and domain weights, every result shows your score per domain, and Review Mode re-drills the questions you missed.

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Not affiliated with NASAA; questions are original, written from the official exam outline, and never copied from the real exam.