Recently, there has been a trend on all licensing exams toward more scenario-based suitability questions. These questions describe an investor’s circumstances and objectives. Then the test taker must select the best (or sometimes the worst) investment from a multiple-choice menu.
Many students think these questions are especially difficult, because they not only require strong product knowledge but also emphasize “know your customer” concepts. Whereas other exam questions that test rote memory or proficiency with a formula are straightforward, scenario-based suitability questions are typically nuanced and arguably subjective. They sometimes seem to ramble aimlessly, and often include distracting, irrelevant information.
Frequently, scenario-based questions involve an agonizing choice between two similar securities. At other times, none of the four choices seems appealing. This forces a grim decision not unlike that school cafeteria experience, when you must choose between the mystery meat and that deep-fried rectangle!
It’s logical that these questions are appearing in greater numbers, because a primary function of most securities professionals is helping clients select appropriate investments. Therefore, this increased focus on customer suitability is probably a sustained trend.
A great exam prep instructor will help you decipher complex suitability clues and prioritize investor objectives. That instructor will teach beyond simple “flashcard” features of various securities and help you understand their performance in both strong and weak markets.
At FIRE Solutions we have developed tools to help you match different investments to specific investor needs. And, our live instructors are always available to coach you when self-study materials alone can’t pull you through a difficult concept.