SERIES 66 EXAM COVERS DOLLAR WEIGHTED RETURN, SO BE PREPARED!

Are you planning to sit for the Series 66?  This is the exam that is required by most states for those wishing to register as investment adviser representatives, provided that the applicant has a valid Series 7 registration (or plans to acquire one in the near future). If so, be aware that the Series 66 Test Specifications published by NASAA includes topics such as time-weighted return and dollar-weighted return. Therefore, do not go into the Series 66 exam unless you are adequately prepared how to apply the formulas for the above returns.

For example, dollar-weighted return takes into account deposits of cash and withdrawals during the period, i.e., usually for the calendar year.

It is not correct to simply take the gain (or loss) for the year and divide it by the beginning balance, as of January 1. Dollar-weighted return, a more correct but complex approach, makes adjustment for any withdrawals and for any deposits. 

If, for example, a deposit is made into the investment account on May 1, then the portfolio manager must adjust the deposit  by taking 7/12 of the amount.  Why seven twelfths? Because the deposit affects the total return but only for seven months, May through December.

We are not going to give an actual example in this post. However, our book Study for the Series 66 Exam goes into depth on how to apply the formula and make the calculations for dollar-weighted Return.

Study for the Series 66 Exam is available from Amazon either in paperback or Kindle e-book versions. Here is a link to Bob Eder's Series 66 book on Amazon.

Bob Eder's book is available from Amazon in both paperback and Kindle e-book versions. 

Here is a link to NASAA's Content Outline for the Series 66 exam. See III K (1) of the Series 66 Test Specifications for dollar-weighted return.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law in 2001.