This chapter covers 25% of the Series 63 exam (approximately 15 questions).
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 1 | Compensation | Fees, commissions, markups, soft dollars, and disclosure of compensation |
| 2 | Customer Funds and Securities | Custody, discretion, trading authorization, and the applicable standard of care |
| 3 | Conflicts of Interest, Criminal Activities, and Other Ethics Issues | Prohibited practices, market manipulation, insider trading, and vulnerable adults |
Why This Chapter Matters
This is the largest chapter on the exam. Most questions present a scenario and ask whether the conduct is permissible, and the answer usually turns on which type of professional is involved.
Exam Strategy
At 25% of the exam, this chapter produces about 15 questions. Focus on:
- Custody is authority, not possession. Fee-deduction authority alone is custody
- Discretion is not custody. Either can trigger a bond, but they are separate determinations
- A broker-dealer or agent needs written discretionary authority in advance; an adviser may act on oral discretion and paper it shortly after
- Commingling and conversion are always prohibited, with no exemption
- Advisers owe an ongoing fiduciary duty; broker-dealers owe best interest at the point of recommendation