FINRA Series 22 Practice Test & Mock Exam

Series 22 rewards candidates who can understand direct participation program structures, explain risks and disclosures cleanly, and process DPP transactions without missing the compliance step. If you are searching for Series 22 sample questions, a practice test, mock exam, or simulator, this is the main Securities Prep page to start on web and continue on iOS or Android with the same account. This page includes 24 sample questions with detailed explanations so you can try the exam style before opening the full app question bank.

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What this Series 22 practice page gives you

• a direct route into the Securities Prep simulator for Series 22
• targeted practice around DPP structures, disclosure, due diligence, tax concepts, and transaction handling
• detailed explanations that show why the strongest representative response is the most defensible
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 22 exam snapshot

• Provider: FINRA
• Exam: Direct Participation Programs Limited Representative
• Practice reference: 50 practice questions in 90 minutes
• Registration context: generally paired with the SIE

Topic coverage for Series 22 practice

• DPP product knowledge: limited partnership interests, offering structures, and risk drivers
• Due diligence and disclosure: suitability, disclosure, documentation, and tax-sensitive decision points
• Processing and compliance: subscription handling, compliant next steps, and recordkeeping

How Series 22 differs from similar routes

How to use the Series 22 simulator efficiently

1. Start with DPP structure and disclosure drills so the product workflow becomes easier to recognize.
2. Review every miss until you can explain which disclosure, risk, or tax issue changed the answer.
3. Move into mixed sets once you can switch between product, due-diligence, and transaction scenarios without losing pace.
4. Finish with timed runs so the 90-minute session feels controlled.

Free preview vs premium

• Free preview: 24 public sample questions on this page plus the web app entry so you can validate the question style and explanation depth.
• Premium: the full Series 22 practice bank, focused drills, mixed sets, timed mock exams, detailed explanations, and progress tracking across web and mobile.

Free samples and full bank

• Live now: this exact practice route is available in Securities Prep on web, iOS, and Android.
• On-page sample set: this page includes 24 public sample questions from the current practice coverage.
• Full app: open the Securities Prep web app or mobile app for broader timed coverage.

Good next pages after Series 22

• Series 39 if you are moving from DPP sales into DPP-principal supervision
• Series 82 if you are comparing DPP offerings against the broader private-placement route
• Series 7 if you want the broader representative route instead of the DPP specialist path
• FINRA if you want the full representative and specialist route map first

Free review resources

Use these free SecuritiesMastery.com resources for concept review, then return to this page when you are ready to practice in Securities Prep.

• Series 22 Cheat Sheet
• Series 22 Study Guide

Focused sample questions

Use these focused Series 22 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• DPP Business Development
• Account Opening
• DPP Recommendations
• Purchase Processing
• Free Series 22 Full-Length Practice Exam

24 Series 22 sample questions with detailed explanations

These sample questions cover multiple blueprint areas for Series 22. Use them to check your readiness here, then move into the full Securities Prep question bank for broader timed coverage.

Question 1

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer in a high tax bracket wants to invest $75,000 in a real estate limited partnership primarily to use expected early-year tax losses to offset W-2 wages and interest income. The customer will be a limited partner with no role in management.

Which tax-related limitation is the most important tradeoff to explain for this objective?

• A. Distributions will be tax-free until the customer’s basis reaches zero
• B. Any partnership loss will automatically trigger alternative minimum tax (AMT)
• C. Losses are generally deductible only against passive income, with unused losses carried forward
• D. K-1s are always issued after April 15, requiring a tax filing extension

Best answer: C

Explanation: Because the customer will be a limited partner with no material participation, the activity is generally treated as passive. Passive activity losses are usually limited to passive activity income and cannot typically offset W-2 wages or portfolio income. Any disallowed passive losses may be carried forward and used in future years against passive income (or upon a taxable disposition).

Question 2

Topic: Function 2 — Opens Accounts After Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives

A registered, non-traded REIT DPP is being offered as an income-oriented program with an expected holding period of 7 years. The issuer permits quarterly share repurchases only at its discretion and generally limits repurchases to 2% of NAV per quarter.

A 45-year-old customer with two dependents wants to invest $75,000 and says the funds may be needed for college tuition in about 18 months. The customer has only $15,000 in liquid savings and moderate investing experience.

Which risk/limitation is most important for the representative to emphasize when evaluating suitability for this customer and product setup?

• A. Limited liquidity and potential inability to access principal when needed
• B. Real estate occupancy and rental-rate volatility
• C. Sponsor conflicts of interest in acquiring properties
• D. Risk of adverse changes in tax law affecting deductions

Best answer: A

Explanation: The key additional profile factor is the customer’s near-term liquidity need for tuition, combined with low liquid reserves. A non-traded REIT DPP typically has limited, discretionary repurchase features and an expected multi-year hold, so the primary tradeoff is illiquidity and the possibility that funds will not be available when needed.

Question 3

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

Which statement is most accurate about qualified non-recourse financing in a real estate DPP and its treatment under the at-risk rules?

• A. Non-recourse financing increases an investor’s at-risk amount only when the general partner guarantees the loan.
• B. Qualified non-recourse financing secured by real property can increase an investor’s at-risk amount even though the investor is not personally liable.
• C. All non-recourse debt is excluded from an investor’s at-risk amount, regardless of the collateral or lender.
• D. Qualified non-recourse financing applies to any non-recourse borrowing used by a DPP, including equipment leasing programs.

Best answer: B

Explanation: At-risk limitations generally prevent investors from deducting losses beyond amounts they could actually lose, so non-recourse debt usually does not increase at-risk. An important exception is qualified non-recourse financing in certain real estate activities, where the debt is treated more like the investor is economically exposed even without personal liability.

Question 4

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer is considering a direct participation program (DPP) that will buy and lease a fleet of medical imaging equipment to hospitals under 5–7 year leases. The customer’s primary objective is steady cash distributions from lease payments and potential tax benefits, and the customer understands the investment is long term.

Which risk/limitation is the most important tradeoff to emphasize for this type of DPP?

• A. Refinancing risk from significant real estate leverage
• B. Commodity price risk
• C. Occupancy and rental-rate risk
• D. Residual value and re-leasing/remarketing risk

Best answer: D

Explanation: An equipment-leasing DPP is driven by lease cash flows and what the sponsor can realize from the equipment at lease end. The key tradeoff is that distributions and total return can be hurt if the equipment becomes obsolete, lessees don’t renew, or the assets can’t be re-leased or sold at expected values. This residual value/remarketing risk is central to the program’s economics.

Question 5

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

A sponsor is marketing two real estate DPP offerings:

• Program A sells limited partnership units.
• Program B sells tenant-in-common (TIC) interests in identified properties.

A prospect asks which program would give her direct ownership in the real estate and what investor rights typically come with that form. Which choice best matches the security form to the investor’s rights?

• A. Program B: deeded undivided real estate interest; shared control decisions
• B. Program A: deeded undivided real estate interest; shared control decisions
• C. Program A: LLC membership interest; members usually manage day-to-day
• D. Program B: limited partnership interest; no real estate title; minimal votes

Best answer: A

Explanation: A TIC interest is a direct, undivided ownership interest in the underlying real property, typically evidenced by a deed and accompanied by co-owner decision rights on key property matters. By contrast, a limited partnership unit is an interest in an entity that owns the property; limited partners generally do not have day-to-day control.

Question 6

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

A customer is considering a private real estate DPP offered on a best-efforts basis using a PPM. The customer wants current income but is concerned about limited liquidity and asks whether the sponsor “gets paid twice” because an affiliated company will provide property management and leasing services. The customer also says they want to make a decision today and asks where this is disclosed. As the DPP representative, what is the single best response/action?

• A. Tell them it’s covered in the subscription agreement after signing
• B. Use the marketing brochure since it’s written in plain English
• C. Avoid discussing affiliate compensation; refer the question to the sponsor
• D. Provide the PPM and point to the conflicts/affiliate-transactions disclosures

Best answer: D

Explanation: Affiliated service providers and sponsor compensation are common DPP conflicts of interest that must be clearly disclosed to investors. The appropriate action is to ensure the customer has the PPM and direct them to the conflicts-of-interest and fees/expenses disclosures that describe related-party arrangements and how the sponsor and its affiliates are paid. This supports an informed decision before any subscription is accepted.

Question 7

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer has completed a subscription agreement for a public, non-traded REIT and plans to wire $50,000. Two days before the offering’s scheduled closing, the issuer sends the broker-dealer a PPM supplement stating that recent interest-rate increases are expected to raise borrowing costs and reduce projected cash distributions, and that certain forward-looking assumptions were updated. The customer has not yet received the supplement and funds have not been sent to escrow.

What is the best next step for the representative?

• A. Proceed with wiring funds to escrow because projections are not guarantees and the closing date is imminent
• B. Wait until after the offering closes to deliver the supplement, since it is only an update to assumptions
• C. Send the customer the PPM supplement, explain the impact and uncertainty, and obtain confirmation to proceed before submitting funds
• D. Tell the customer distributions will likely be unchanged because the REIT can renegotiate financing terms later

Best answer: C

Explanation: When market or regulatory developments cause a material update to a DPP’s expected economics, the representative must communicate the new information and its uncertainty before completing the transaction. Here, the issuer updated assumptions and expected distributions due to interest-rate changes, so the supplement must be delivered and discussed. The customer should affirm the decision to proceed before the subscription and funds are processed.

Question 8

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A registered limited partnership program is sold as a direct participation program (DPP). One stated feature is that investors receive a Schedule K-1 showing their share of the program’s taxable income, deductions, and credits, rather than the issuer paying entity-level tax.

Which option best matches what this feature indicates about a DPP versus traditional corporate equity and debt securities?

• A. It pays fixed interest that is taxed as ordinary income
• B. It is typically a pass-through entity for tax reporting
• C. It represents a secured creditor claim on the issuer’s assets
• D. It makes dividend distributions from after-tax corporate earnings

Best answer: B

Explanation: A hallmark of many DPPs (such as limited partnerships and many LLC programs) is pass-through taxation, where tax items flow through to investors and are reported on Schedule K-1. By contrast, traditional corporate equity typically involves entity-level taxation with shareholders receiving dividends, and traditional debt involves interest payments to creditors. The K-1 feature points to pass-through reporting rather than fixed-income or corporate dividend characteristics.

Question 9

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A DPP representative wants to email a prospective investor a spreadsheet that uses an IRR calculator to compare two private real estate programs. The spreadsheet requires inputs for holding period, leverage, projected cash distributions, and an assumed sale price at exit, and it produces a single “expected IRR.” Which action best aligns with durable communications and best-interest standards when using this type of analysis tool?

• A. Avoid any modeled analysis and provide only the programs’ distribution rates
• B. Use the sponsor’s “target IRR” as the expected IRR and send it with the PPM
• C. Send the spreadsheet only after the customer signs the subscription agreement
• D. Base inputs on reasonable, supportable assumptions, disclose the key assumptions and limitations (hypothetical, not guaranteed), and submit the spreadsheet for required principal approval before use

Best answer: D

Explanation: Modeled IRR outputs are only as reliable as their inputs, so the representative must use reasonable, supportable assumptions and clearly disclose that the results are hypothetical and not guarantees. A fair and balanced communication should also highlight the tool’s limitations and key variables driving outcomes. When the spreadsheet is being used as a sales communication, it should go through the firm’s approval process as required.

Question 10

Topic: Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions

A limited partnership DPP is being sold on a best-efforts basis. The PPM states that investor subscription checks will be deposited with an independent escrow agent and will be released to the issuer only after the minimum offering amount is reached; otherwise, funds will be returned to subscribers.

Which option best matches the primary purpose of this escrow procedure?

• A. It keeps investor funds segregated until stated offering conditions are satisfied
• B. It allows the issuer to use investor funds for offering expenses before closing
• C. It guarantees the issuer will raise the full amount offered
• D. It replaces the need for broker-dealer supervision of subscription documents

Best answer: A

Explanation: In a contingent DPP offering, escrow is used to hold subscription proceeds with an independent agent until the offering’s stated conditions (such as a minimum amount) are met. If those conditions are not met by the deadline, the money is returned to investors rather than being used by the issuer. This segregation and conditional release is the core investor-protection function of escrow.

Question 11

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

A registered representative creates a one-page handout comparing two DPPs for a customer seminar:

• Program A: oil-and-gas limited partnership marketed for potential depletion deductions
• Program B: non-traded REIT marketed for potential income distributions

Which tax-related statement is the most appropriate to include in the handout?

• A. Tax results vary by investor; consult a tax adviser; laws may change
• B. Program A will reduce every investor’s taxable income
• C. These tax benefits are IRS-approved and cannot be challenged
• D. Our firm can determine which program is best for your taxes

Best answer: A

Explanation: Tax-related statements in DPP communications must be presented as general information, not as a promised outcome. The actual tax impact can differ based on an investor’s circumstances (e.g., income, passive activity limits, basis/at-risk) and because tax laws and interpretations can change. A clear disclaimer to consult a tax professional and acknowledge change-in-law risk is appropriate.

Question 12

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A real estate limited partnership has 1,000,000 units outstanding. A customer owns 20,000 units.

The limited partnership agreement states that the partnership will dissolve and begin liquidation upon the earliest of: (1) December 31, 2030 (term expiration), (2) the sale of all or substantially all partnership assets, (3) withdrawal of the last remaining GP unless a successor GP is admitted within 90 days, or (4) approval by holders of at least 66 2/3% of the units.

Today, the partnership sold its only property and related assets for $52,000,000, repaid a $30,000,000 mortgage at closing, and will pay liquidation expenses equal to 1% of the sale price. The remaining cash will be distributed pro rata to all unitholders (ignore taxes). What is the best answer regarding the dissolution trigger and the customer’s estimated liquidating distribution (round to the nearest dollar)?

• A. Partner vote; $435,600
• B. Withdrawal of the last GP; $440,000
• C. Term expiration; $429,600
• D. Sale of substantially all assets; $429,600

Best answer: D

Explanation: A limited partnership typically dissolves upon an event specified in its partnership agreement, such as the sale of all or substantially all assets. Here, the sale of the only property meets that trigger. The customer’s liquidating distribution is their pro rata share of net sale proceeds after paying the mortgage and liquidation expenses.

Question 13

Topic: Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions

A customer submits a completed subscription agreement and wires $50,000 for a limited partnership DPP being sold on a best-efforts, contingency basis. The PPM states that investor funds will be held in escrow until the program reaches its minimum offering amount by a stated deadline.

The deadline passes and the issuer does not meet the minimum. What is the most likely outcome for the customer and the broker-dealer’s transaction documentation?

• A. Escrow funds are returned and no purchase confirmation is sent
• B. Funds are released to the issuer and a confirmation is sent within 3 business days
• C. Units are issued for a reduced amount and a confirmation is sent
• D. The transaction is confirmed based on receipt of funds, even if the issuer rejects the offering

Best answer: A

Explanation: In a contingency offering, investors’ money stays in escrow until the stated minimum is reached. If the minimum is not met by the deadline, the offering is terminated for investors and the escrowed funds are returned. Because no securities are issued and no sale is completed, a customer would not receive a confirmation of a completed purchase.

Question 14

Topic: Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions

In a DPP offering, the investor completes a document that is signed and dated, includes investor representations (e.g., eligibility and suitability-related statements), and contains acknowledgements of key risks and illiquidity. The issuer uses this document to accept or reject the purchase.

Which document best matches this description?

• A. Private placement memorandum (PPM)
• B. Subscription agreement (order form)
• C. Escrow agreement with the depository bank
• D. Selling group agreement

Best answer: B

Explanation: The subscription agreement (often called the order form) is the investor’s executed purchase document in a DPP. It typically includes required signatures, investor representations, and acknowledgements of risks, and it is what the issuer reviews to decide whether to accept the subscription.

Question 15

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A 62-year-old retired customer has annual income of $55,000 from Social Security and a pension. Liquid net worth is $150,000 (cash and marketable securities). Total net worth is $900,000, including a $700,000 primary residence. The customer wants to invest $100,000 in a non-traded REIT DPP and says the anticipated distributions will help pay monthly expenses. The PPM states distributions are variable and may be reduced or suspended.

Which statement by the representative is INCORRECT when assessing the customer’s capacity for loss and ability to absorb distribution variability?

• A. Emphasize distributions are not guaranteed and may be suspended
• B. Evaluate the investment size relative to liquid net worth
• C. Rely on home equity to justify tolerance for cash-flow shortfalls
• D. Confirm other income can cover expenses if distributions stop

Best answer: C

Explanation: Capacity for loss and ability to handle variable distributions in a DPP should be assessed using stable income sources and liquid net worth/cash reserves. A non-traded REIT’s distributions are not guaranteed and can be reduced or suspended, so the customer must be able to meet expenses without relying on them. Treating home equity as readily available support overstates the customer’s ability to absorb cash-flow shortfalls.

Question 16

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer is considering a privately offered oil and gas limited partnership. You are reviewing the PPM’s risk factors with them.

Exhibit: PPM risk factor excerpt

“Operations are subject to federal, state, and local environmental and safety laws. New or expanded regulations (including methane emissions standards, flaring limits, and well-plugging requirements) may increase compliance and remediation costs. Required permits may be delayed or denied, which could postpone drilling and production. If we are found to be in violation, we may incur fines, be required to suspend operations, or undertake corrective actions that could reduce cash available for distribution.”

Which interpretation is most supported by the exhibit?

• A. Distributions are expected to continue even if permits are delayed.
• B. Regulatory changes could increase costs and delay production, reducing distributions.
• C. Any fines or remediation costs will be paid by the sponsor, not the partnership.
• D. Environmental rules create additional tax benefits that offset compliance costs.

Best answer: B

Explanation: The risk factor states that environmental and safety regulation can raise compliance and remediation costs and that permits can be delayed or denied. It also explains that violations can lead to fines or suspensions and that these items can reduce cash available for distributions. Therefore, the supported interpretation is that regulatory risk can impair program viability and increase costs, potentially lowering distributions.

Question 17

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

A representative is discussing a best-efforts, private placement real estate DPP with a customer who says she will need most of the money back in about 18 months for a home down payment. She asks whether she can “just sell it if I need cash.”

What is the best next step?

• A. Accept the check and submit the subscription while sending the PPM afterward
• B. Pause the sale and explain the DPP’s illiquidity and long holding period before any recommendation
• C. Proceed if the customer signs a statement acknowledging liquidity risk
• D. Tell the customer the sponsor will repurchase units at NAV upon request

Best answer: B

Explanation: DPPs are typically illiquid because interests are not listed and transfers/redemptions are limited or uncertain. A customer with a known near-term liquidity need may be unsuitable, so the representative must first disclose and discuss illiquidity and holding-period expectations before moving forward with the offering process. This aligns the recommendation and the customer’s expectations with the product’s actual liquidity constraints.

Question 18

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

A broker-dealer is joining the selling group for a nontraded real estate DPP. Before the selling agreement is finalized, the sponsor’s wholesaler tells a registered rep to start calling prospects and offers an extra 2% “marketing allowance” paid directly to the rep for hitting a sales target. What is the rep’s best next step?

• A. Have the sponsor pay the 2% to clients as a purchase discount
• B. Accept the allowance if it is disclosed verbally to clients
• C. Escalate to compliance/supervision and decline the direct payment
• D. Begin soliciting now, but wait to accept funds until closing

Best answer: C

Explanation: DPPs create heightened sales-practice risks because compensation can be high and may improperly influence recommendations. A key control is that all selling compensation and arrangements must be broker-dealer approved, properly disclosed, and paid through permitted channels—not directly to the rep by the sponsor or wholesaler. The rep should escalate and stop the activity until supervision and the selling agreement/comp terms are in place.

Question 19

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer who wants current income and understands the investment will be illiquid is considering a non-traded real estate DPP. Before she decides, she asks, “How much of my $50,000 actually goes toward buying properties versus fees, and what is that money used for?”

Exhibit: Prospectus excerpt (Use of Proceeds)

• Gross offering proceeds: 100%
• Selling compensation and offering expenses: 15%
• Net proceeds (amount available for investment): 85%
• Net proceeds expected uses include: acquiring real estate assets, paying acquisition-related costs, and establishing working capital reserves.

What is the best response by the DPP representative?

• A. State that the full $50,000 is invested in properties, and sponsor fees are paid only from future cash flow.
• B. Describe the projected distribution rate as the best measure of how much money will be invested in properties.
• C. Advise the customer to focus on the secondary market and redemption program because those determine how proceeds are invested.
• D. Explain that the amount available for investment is the net proceeds after upfront selling and offering costs, and it generally funds asset acquisition and program reserves.

Best answer: D

Explanation: The amount available for investment is the portion of offering proceeds remaining after upfront selling compensation and offering expenses. That net capital is what typically funds the program’s primary economic uses—acquiring the underlying assets, paying acquisition-related costs, and maintaining working capital reserves. The exhibit provides the disclosure framework the representative should use to answer the customer’s question.

Question 20

Topic: Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions

A customer submits an electronic subscription agreement to purchase units of a nontraded REIT (a DPP). The customer’s check is made payable to the offering’s escrow agent, and the firm will not send a trade confirmation until the subscription is accepted.

Which statement about this process is INCORRECT?

• A. The issuer’s acceptance condition helps ensure the investor meets offering eligibility and the issuer can manage offering limits and terms.
• B. Customer funds are commonly held in escrow pending issuer acceptance and any offering conditions being met.
• C. Once the customer signs the subscription agreement, the sale is final and the issuer cannot reject the order.
• D. A registered principal typically reviews the order for completeness and suitability before it is forwarded for processing.

Best answer: C

Explanation: DPP purchases are usually submitted as subscriptions that remain conditional until the issuer accepts them. Before forwarding and processing a subscription, the firm generally performs supervisory review (e.g., completeness and suitability/best interest) and follows the offering’s escrow and acceptance procedures. Because acceptance is not guaranteed, confirmations are typically issued only after acceptance.

Question 21

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A registered representative is preparing to email an electronic subscription package for a private real estate limited partnership that targets long-term appreciation and tax benefits and states that investors should expect to hold units 7–10 years with limited liquidity.

During the call, the customer says she is investing $75,000 because she wants “a safe place to park cash” and expects to use the money for a home down payment in about 18–24 months.

What is the BEST next step in the proper recommendation/subscription sequence?

• A. Revisit objectives and time horizon, explain the mismatch and illiquidity, and do not proceed with the subscription
• B. Request a signed risk acknowledgment and then proceed because disclosures were provided
• C. Collect the check and forward it for escrow deposit to reserve units at the current offering price
• D. Send the subscription package now and address suitability after the issuer accepts it

Best answer: A

Explanation: The customer’s stated need for short-term access to principal conflicts with a DPP designed for a multi-year holding period and limited liquidity. The representative’s next step is to address that mismatch as part of the recommendation process before sending subscription documents or taking funds. Proceeding first would be premature and could result in an unsuitable transaction.

Question 22

Topic: Function 3 — Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records

A customer with a \$1.2 million net worth has \$250,000 in liquid assets and no expected cash needs for 8–10 years. His current holdings include his primary residence plus two rental properties and a listed REIT fund; together, real-estate-related positions already represent about 45% of his net worth. He wants “more diversification” and steady income. A representative recommends allocating an additional 30% to a non-traded REIT, noting it pays a 7% selling commission.

Which risk/limitation is most important to address before making this recommendation?

• A. Short-term liquidity needs could force a discounted sale
• B. The sponsor’s use of leverage will always eliminate income distributions
• C. Concentration and correlation with the customer’s existing real-estate exposure
• D. Ordinary-income taxation of REIT distributions makes it unsuitable

Best answer: C

Explanation: The key tradeoff is that a large additional allocation to a non-traded REIT would further concentrate the customer in real-estate-related risk that is highly correlated across properties and REITs. Because the customer’s objective is diversification, increasing the allocation based on a higher commission conflicts with suitability/best-interest principles. Allocation decisions must be driven by the customer’s risk profile and diversification needs, not compensation.

Question 23

Topic: Function 1 — Seeks Business for the Broker-Dealer from Customers and Potential Customers

Which statement is most accurate regarding conflicts of interest in a direct participation program (DPP) offering and where they are typically disclosed?

• A. Conflicts of interest are typically disclosed only after purchase in periodic investor reports, not in the PPM/prospectus.
• B. Sponsor and affiliate fees and related-party transactions are typically disclosed in the offering document (PPM/prospectus), often in sections such as Conflicts of Interest and Fees/Compensation.
• C. If the sponsor represents that terms are “market,” conflicts of interest do not need to be disclosed in the offering document.
• D. Conflicts of interest must appear only in sales literature because the PPM/prospectus is limited to financial statements and tax matters.

Best answer: B

Explanation: Material conflicts in a DPP commonly arise from sponsor compensation and transactions with sponsor affiliates (e.g., acquisition, financing, property management, leasing, or disposition arrangements). These are typically disclosed up front in the offering document—PPM or prospectus—so investors can evaluate how incentives may affect program decisions before subscribing.

Question 24

Topic: Function 4 — Obtains and Verifies Customers’ Purchase Instructions and Agreements; Processes, Completes and Confirms Transactions

A registered non-traded REIT offers volume discounts on upfront sales charges. A customer wants to invest $60,000 in a traditional IRA and $50,000 in a joint account with a spouse at the same address, and asks to receive any available breakpoint pricing.

Exhibit: Prospectus excerpt (sales charge schedule)

“Household aggregation is permitted only if the investor provides a signed Household Aggregation Form at the time of subscription; confirmations will reflect the discounted sales charges when properly documented.”

Which action by the representative best aligns with durable standards for applying and communicating breakpoint pricing?

• A. Tell the customer the prospectus table is only “illustrative” and not binding
• B. Process each account separately and advise the customer to request a refund later
• C. Apply the discount based on the customer’s verbal request, then document later
• D. Obtain the signed aggregation form and submit both subscriptions together

Best answer: D

Explanation: Breakpoint/volume discounts must be applied only when the customer meets the offering’s stated eligibility conditions and the basis for the discount is documented. Here, the prospectus permits household aggregation only with a signed aggregation form at the time of subscription. Submitting the documented aggregation with the subscriptions supports correct pricing and clear customer communications on the confirmation.

Series 22 DPP representative map

Use this map after the sample questions to connect individual items to direct participation program structure, tax risk, illiquidity, offering documents, suitability, and disclosure decisions these Securities Prep samples test.

    flowchart LR
	  S1["Investor objective or DPP feature"] --> S2
	  S2["Identify program structure and sponsor risk"] --> S3
	  S3["Assess liquidity leverage tax and income effects"] --> S4
	  S4["Match suitability and concentration limits"] --> S5
	  S5["Review offering disclosure and compensation"] --> S6
	  S6["Document recommendation and client understanding"]

Quick Cheat Sheet

Mini Glossary

• DPP: Direct participation program, often involving pass-through income, illiquidity, and tax considerations.
• Suitability: Assessment that a recommendation fits the customer profile and the representative’s obligations.
• Customer profile: Facts such as objective, risk tolerance, liquidity need, time horizon, tax status, and constraints.
• Product review: Understanding product structure, risks, costs, liquidity, conflicts, and investor outcomes.
• Supervision: Firm process for review, approval, escalation, and evidence of compliance.

In this section

• Series 22: DPP Business Development
  Try 10 focused Series 22 questions on DPP Business Development, with explanations, then continue with the full Securities Prep practice test.
• Series 22: Account Opening
  Try 10 focused Series 22 questions on Account Opening, with explanations, then continue with the full Securities Prep practice test.
• Series 22: DPP Recommendations
  Try 10 focused Series 22 questions on DPP Recommendations, with explanations, then continue with the full Securities Prep practice test.
• Series 22: Purchase Processing
  Try 10 focused Series 22 questions on Purchase Processing, with explanations, then continue with the full Securities Prep practice test.
• Free Series 22 Full-Length Practice Exam: 50 Questions
  Try 50 free Series 22 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.