Introduction

Welcome to Required Disclosures, Risks, and Fees: the disclosure-and-protection backbone of every Series 6 recommendation. Units 7 and 8 gave you the product universe and the suitability framework. This unit is what the representative must tell the customer, what risks travel with each product, how the product returns are taxed, and how the firm protects a vulnerable customer from financial exploitation.

Exam Weight: Part of 50% (25 questions across Chapter 3)

What You'll Learn

In this unit, you'll cover:

• Required Disclosures on Specific Transactions: Material information the customer must receive at or before a recommendation, the prospectus vs. Statement of Additional Information (SAI) delivery rules, material events during the life of the investment, and the control-relationship disclosure obligation
• Types of Investment Risk: Call, systematic, nonsystematic, reinvestment, and timing risk (the five risks named in Function 3.3), plus interest-rate, credit, inflation, liquidity, and legislative risk as applied to Series 6 products
• Types of Investment Returns: Tax-exempt interest, return of capital, ordinary dividends, qualified dividends, and long-term capital-gain distributions, including Form 1099-DIV placement and the Subchapter M character flow-through
• Costs and Fees Associated with Investments: Markups, commissions, and net transactions; share-class loads and breakpoints under FINRA Rule 2341; non-discretionary fee-based accounts and reverse-churning risk; variable-annuity surrender charges; 12b-1 fees; Mortality and Expense (M&E) charges; and soft dollar arrangements
• Tax Considerations for Gifts, Estates, and Inheritance: The unified federal transfer tax system, 2026 annual gift exclusion and lifetime unified credit, carryover basis on gifts vs. step-up in basis at death, and the retirement-account exception to step-up
• Market Analysis Considerations: Market sentiment (Volatility Index (VIX), put/call ratio, advance/decline line), major market indexes as fund benchmarks, market momentum indicators, and determining the customer's available funds for a recommendation
• Financial Exploitation of Specified Adults under FINRA Rule 2165: The temporary hold framework (15 to 25 to 55 business days), specified adult definition, Trusted Contact Person (TCP) under FINRA Rule 4512, firm notification requirements, and red flags of exploitation

Why This Matters

Function 3.3 is the disclosure spine of Series 6. Every recommendation carries three mandatory disclosure tracks:

• Material aspects of the investment: risks, fees, tax treatment
• Control relationships between the firm and the product
• Material events during the life of the investment

A rep who cannot list the principal risks of a variable annuity cannot satisfy Regulation Best Interest (Reg BI). A rep who places a proprietary fund without disclosing the broker-dealer (BD) affiliation commits a sales-practice violation even if the recommendation is otherwise suitable.

The Series 6 exam tests whether you can:

• Distinguish default-delivery documents from delivery-on-request documents: the prospectus is delivered at or before confirmation; the SAI only on request
• Name the five Function 3.3 risks and apply them to Series 6 products: call, systematic, nonsystematic, reinvestment, timing
• Read a 1099-DIV: which box carries qualified dividends, exempt interest, return of capital, long-term gains
• Identify the conditions behind the 8.5% sales charge cap: available breakpoints, Rights of Accumulation (ROA), and Letter of Intent (LOI)
• Compute a carryover basis vs. a step-up in basis: gift vs. inheritance, and the retirement-account exception
• Apply Rule 2165's hold-duration framework: 15 business days initial, plus 10 internal, plus 30 on regulator report

The next few sections walk the disclosure framework in order: first what must be disclosed, then the specific risk / return / fee content of the disclosure, then downstream tax impact, and finally the regulatory protections that sit on top of the whole framework.

Let's start with the required disclosures on specific transactions, the framework every Series 6 recommendation must satisfy.