FINRA Series 39 Practice Test & Mock Exam

Series 39 is the Direct Participation Programs Principal Exam. It is not a generic retail-sales exam or a stripped-down Series 24 clone. It is a DPP-principal route focused on offering structure, communications, suitability supervision, and financial-responsibility controls in a direct-participation business line. If you are searching for Series 39 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 validate the principal-control style before opening the full simulator.

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What this Series 39 practice page gives you

• a direct route into the Securities Prep simulator for Series 39
• 24 blueprint-aligned sample questions focused on DPP principal supervision
• topic guidance for offering structure, sales supervision, and financial responsibility
• a clear free-preview path before you subscribe
• the same subscription across web and mobile

Series 39 exam snapshot

• Provider: FINRA
• Exam: Direct Participation Programs Principal Exam
• Practice reference: 100 practice questions in 135 minutes
• Registration context: principal-level route for direct participation programs business

Topic weighting for Series 39 practice

What Series 39 is really testing

Series 39 is a supervisory DPP exam. The strong answers usually identify:

• whether the offering structure or compensation design is acceptable
• whether the sales process is suitable and properly supervised
• whether the firm’s books, filings, and financial-responsibility controls remain defensible

How Series 39 differs from similar routes

How to use the Series 39 simulator efficiently

1. Start with offering-structure and compensation drills because they drive the largest part of the blueprint.
2. Review every miss until you can explain the principal-control issue, not just the product feature.
3. Move into mixed sets once you can switch between offering, suitability, and financial-responsibility scenarios cleanly.
4. Finish with timed runs so the 135-minute pace 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 39 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 39

• Series 22 if you want the representative-level DPP route beside the principal page
• Series 24 if you are comparing DPP-principal supervision against broader broker-dealer principal coverage
• Series 26 if you are comparing DPP principal work against packaged-products principal supervision
• FINRA if you want the broader principal 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 39 Cheat Sheet
• Series 39 Study Guide

Focused sample questions

Use these focused Series 39 sample-question pages when you want to isolate one official topic area before returning to the mixed simulator.

• DPP Offering Regulation
• Sales and Employee Supervision
• Financial Responsibility Rules
• Free Series 39 Full-Length Practice Exam

24 Series 39 sample questions with detailed explanations

These 24 questions are selected from the live FINRA Series 39 practice coverage and span the main blueprint areas shown above. Use them to test readiness here, then continue into the full Securities Prep simulator for broader timed coverage.

Question 1

Topic: Function 3 - Compliance with Financial Responsibility Rules

A DPP broker-dealer relies on a customer-protection exemption described in its WSPs as available only if the firm promptly transmits customer funds and securities and carries no customer margin accounts. Management wants to add a small number of retail margin accounts through a carrying firm and keep the exemption unchanged because the carrying firm would hold the margin collateral. Which action best aligns with financial-responsibility compliance?

• A. Stop relying on the exemption before opening customer margin accounts.
• B. Keep relying on the exemption after adding disclosures and principal approval.
• C. Keep relying on the exemption because the carrying firm holds collateral.
• D. Keep relying on the exemption if margin accounts remain limited in number.

Best answer: A

Explanation: The exemption in the stem is available only if the firm promptly transmits customer property and carries no customer margin accounts. Once the firm decides to permit customer margin accounts, the principal cannot continue relying on that exemption just because a carrying firm holds the collateral or the activity would be small. The core issue is eligibility for the prompt-transmission customer-protection exemption. In the stem, that exemption is expressly conditioned on two facts: prompt transmission of customer property and no customer margin accounts. If the firm adds customer margin accounts, it no longer fits the stated exemption framework. That remains true even when a carrying firm, rather than the introducing firm, maintains the collateral.

The principal should therefore treat the proposed change as an exemption-status issue and prevent the firm from continuing to operate as exempt unless the margin plan is abandoned or the firm is prepared to comply with the non-exempt customer-protection requirements. Disclosures, principal sign-off, or a small number of accounts do not preserve eligibility when the core condition is no margin accounts.

The key takeaway is that exemption status turns on the firm’s actual account structure, not on how limited or disclosed the margin activity is.

Question 2

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A DPP principal is reviewing the firm’s gifts-and-entertainment controls. For this question, assume FINRA’s gifts rule limits gifts given in relation to the business of the recipient’s employer to $100 per person per year, while ordinary and reasonable business entertainment is evaluated separately. Which statement is most accurate?

• A. Reasonable business entertainment must always be counted toward the $100 annual gift limit.
• B. The gifts rule applies only when the recipient is a customer of the broker-dealer.
• C. Multiple non-cash gifts to one sponsor employee must be aggregated, and totals over $100 for the year are impermissible.
• D. The $100 annual limit applies separately to each associated person who gives the item.

Best answer: C

Explanation: The key point is that gifts are aggregated by recipient over the year, not judged item by item or giver by giver. In a DPP setting, a principal should treat repeated gifts to one sponsor employee as a single supervisory total for purposes of the $100 limit. FINRA’s gifts standard focuses on gifts given in relation to the business of the recipient’s employer. In this scenario, the supervisory risk arises when separate non-cash items to the same sponsor employee are added together and exceed the stated $100 annual cap. A principal’s review should therefore track gifts by recipient and over time, rather than only reviewing each item in isolation.

Ordinary and reasonable business entertainment is generally analyzed separately from the gift limit, although it still must not be so frequent or lavish that it raises questions of propriety. The rule also is not limited to customers; it can apply to business-related recipients such as employees of sponsors or other securities-industry counterparties. The closest trap is treating the limit as a per-giver allowance rather than a per-recipient aggregate test.

Question 3

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A Series 39 principal is conducting the pre-acceptance review of a public DPP subscription. The signature page includes payment instructions and a prospectus receipt acknowledgment, but it does not include purchaser representations that the investor understands the investment is illiquid, may have limited marketability, and must be suitable for the investor’s financial situation. Under the firm’s subscription-acceptance workflow, what is the best next step?

• A. Return the packet for corrected purchaser representations before any acceptance decision.
• B. Forward the packet to the sponsor for acceptance because payment was included.
• C. Accept the subscription now and obtain the missing acknowledgments afterward.
• D. Rely on the registered representative’s suitability notes instead of amending the signature page.

Best answer: A

Explanation: Missing purchaser representations about illiquidity, marketability, and suitability are a document deficiency in the subscription process. The principal’s proper next step is to require corrected subscription documents before the firm or sponsor accepts the investor. This question tests subscription-document review at the principal level. When required purchaser representations are missing from the subscription package, the deficiency must be corrected before acceptance. Those representations help document that the purchaser understands the DPP’s limited liquidity and marketability and that the investment is appropriate for the purchaser’s circumstances.

The principal should follow the sequence: identify the missing representations, return or suspend the package for correction, and only then permit the acceptance process to continue. A representative’s notes or later follow-up cannot substitute for a properly completed subscription record. Sending an incomplete package forward creates unnecessary supervisory and suitability risk.

The key takeaway is that required subscriber acknowledgments must be captured in the signed documentation before acceptance, not cured afterward.

Question 4

Topic: Function 3 - Compliance with Financial Responsibility Rules

A DPP broker-dealer relies on the Rule 15c3-3 exemption available only if it promptly transmits customer funds and securities and does not otherwise hold them. Today is Tuesday, July 15. The principal reviews this subscription-status report for a private offering. Which action is fully supported by the exhibit?

Investor   Payment received by firm   Current status of funds                  Docs complete
Chen       Monday 3:30 p.m.           Sent to escrow Tuesday 9:00 a.m.         Yes
Lewis      Monday 11:00 a.m.          Held in branch safe pending signature    No
Ortiz      No                         Investor wired directly to escrow agent   Yes
Shah       Monday 2:00 p.m.           Returned Tuesday for payee-name error    N/A

• A. Escalate Chen because next-day transmission to escrow is too late.
• B. Escalate Ortiz because funds went directly to escrow.
• C. Escalate Lewis because the firm is holding customer funds.
• D. Escalate Shah because returning a defective check ends the exemption.

Best answer: C

Explanation: The only entry that clearly threatens exempt status is the one showing the firm physically holding a customer check in the branch. A firm relying on the Rule 15c3-3 exemption cannot keep customer funds while waiting for missing subscription documents. The core concept is the customer protection exemption under Rule 15c3-3 for firms that do not carry customer accounts and promptly transmit customer funds and securities. The Lewis entry shows the firm received the investor’s payment and is keeping it in a branch safe until a missing signature is obtained. That means the firm is holding customer funds instead of promptly transmitting or returning them, which directly threatens the firm’s ability to rely on the exemption.

By contrast, the Chen funds were sent to escrow the next morning, the Ortiz funds never came into the firm’s possession because they went straight to the escrow agent, and the Shah check was returned rather than retained. The key takeaway is that holding a subscription check while paperwork is fixed is the problematic conduct.

Question 5

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

Which statement is most accurate about when activity in a DPP offering requires broker-dealer registration under Section 15(a)(1)?

• A. A person paid by the issuer, rather than investors, does not need broker-dealer registration.
• B. A person may take transaction-based compensation without registration if no customer funds are handled.
• C. A person marketing a Regulation D DPP is exempt from broker-dealer registration.
• D. A person who solicits DPP investors and is paid a percentage of funds raised generally must be registered as a broker-dealer.

Best answer: D

Explanation: The key issue is whether the person is effecting securities transactions for others. In a DPP offering, solicitation plus compensation based on the amount sold is a strong sign of broker activity and generally requires registration. Section 15(a)(1) is implicated when a person is effecting securities transactions for the account of others without broker-dealer registration. In practice, regulators look closely at activities such as soliciting investors, discussing or recommending the offering, participating in the sale process, and especially receiving transaction-based compensation, such as a percentage of funds raised. That compensation structure strongly suggests the person is being paid to sell securities, not merely providing ministerial support. A private placement format, issuer-paid compensation, or the fact that the person never handles customer funds does not create a blanket exemption from broker-dealer registration. For a DPP principal, outside finders, consultants, and marketers should be reviewed carefully before they are allowed to participate in distribution activity. The main takeaway is that sales-related activity tied to deal compensation is the clearest warning sign.

Question 6

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A broker-dealer that sells a public DPP limited partnership allows representatives to submit investor checks with signed subscription agreements, and its WSPs let operations book the order and accrue selling compensation before the issuer accepts the subscriber. The same procedures allow missing suitability questionnaires and, for retirement accounts, missing plan-adoption paperwork to be collected later. During a supervisory review, the DPP principal finds several orders in this status. What is the best principal action?

• A. Allow booking once funds are received, as long as the customer is told acceptance is still subject to review.
• B. Amend the procedures so orders remain pending and non-commissionable until all required documents are complete and the issuer accepts the subscriber.
• C. Permit booking when the representative attests the investor is suitable and obtain missing documents afterward.
• D. Keep the current process but add an exception report for subscriptions not yet accepted by the issuer.

Best answer: B

Explanation: The principal should require procedures that keep a DPP subscription pending until the subscriber is accepted and all required paperwork is complete. Booking the order or accruing compensation earlier treats an incomplete, unaccepted subscription as a completed sale. For DPP offerings, order-review procedures must condition the sale on both completion of the required subscription materials and acceptance under the offering terms. If the firm books the order, recognizes compensation, or otherwise treats the transaction as final before missing suitability or retirement-plan documents are received and the issuer accepts the subscriber, the procedures are deficient. The principal’s best response is to revise the controls so incomplete subscriptions stay in pending status, cannot be confirmed as final sales, and do not generate commissions until acceptance occurs. Rep certification, cleared funds, or later cleanup do not replace required documents or issuer acceptance. The key supervisory point is to prevent premature completion of the sale, not merely to identify the problem after the fact.

Question 7

Topic: Function 3 - Compliance with Financial Responsibility Rules

A Series 39 principal reviews a DPP firm’s latest net-capital report before approving participation in a new mini-max limited partnership offering.

Exhibit:

WSP note:
- Regular best-efforts DPP offerings: claimed minimum net capital $5,000
- All-or-none or mini-max DPP offerings: claimed minimum net capital $25,000

Latest net capital: $21,400
Proposed offering: mini-max

What should the principal conclude?

• A. The firm may participate only after adding $3,600 of net capital and using the $25,000 category.
• B. The firm may participate only after adding $4,600 of net capital and using the $25,000 category.
• C. The firm may participate now because mini-max is a form of best efforts.
• D. The firm may participate now because its net capital exceeds $5,000.

Best answer: A

Explanation: The exhibit ties regular best-efforts offerings to a $5,000 category, but mini-max offerings to a $25,000 category. Since the firm has $21,400, it is short $3,600 and should not participate until it meets the higher category. This tests whether the underwriting type matches the firm’s claimed minimum-net-capital category. Under the exhibit, a regular best-efforts DPP offering fits the $5,000 category, but a mini-max offering requires the $25,000 category.

• Required minimum for the proposed offering: $25,000
• Current net capital: $21,400
• Shortfall: $3,600

A principal should compare the firm’s actual net capital to the minimum required for the specific underwriting structure before approving participation. Here, the firm cannot rely on the lower category simply because the offering is also described as best efforts; the mini-max feature moves it into the higher requirement.

Question 8

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A DPP-only broker-dealer is preparing to sell a public limited partnership to retail clients, including 401(k) rollover investors. During a pre-use review, the Series 39 principal finds that a newly hired representative has already started calling prospects and that the representative’s Form U4, filed last week, omitted a tax lien and an outside advisory business the representative knew about before filing. What is the best action for the principal?

• A. Permit sales to non-retirement accounts while compliance decides whether the omissions are material.
• B. Memo the file and wait for FINRA to question the filing before amending it.
• C. Allow continued prospecting if the representative gives customers oral disclosure of the omitted items.
• D. Immediately stop the calls, file an amended U4, and resolve the registration issue before further sales.

Best answer: D

Explanation: A Form U4 must be accurate and not misleading. When a principal learns that known reportable items were omitted, the proper response is to stop the representative’s sales activity, amend the filing promptly, and resolve any registration or disciplinary implications before allowing further DPP solicitations. FINRA relies on truthful membership and registration filings. If a representative knew about reportable items before filing and they were omitted, the Form U4 is misleading, and that creates a regulatory problem even if the person has already started contacting investors. A Series 39 principal should treat this as a supervisory and registration issue, not just a disclosure issue, by promptly correcting the filing and restricting activity until the matter is reviewed. Customer-facing disclosure does not cure a false regulatory filing, and waiting for FINRA to discover the problem is not an acceptable control. In a DPP offering, especially one involving retirement-rollover prospects, the firm should not allow continued solicitation while registration accuracy is in question.

Question 9

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A DPP principal at a broker-dealer in the selling group reviews a draft offering package for a public limited partnership. The prospectus summary says the sponsor “oversees selling-group suitability and approves dealer communications.” The selling agreement says each soliciting dealer remains responsible for supervising its associated persons, reviewing suitability, and approving its own retail communications under firm procedures. Before the package is released, which statement by the principal is INCORRECT?

• A. Compare the prospectus language with the selling agreement and the firm’s WSPs.
• B. Our firm may rely solely on the sponsor’s review and omit its own supervision.
• C. Require revisions so the documents do not blur firm responsibilities.
• D. Hold the package until the role descriptions are made consistent.

Best answer: B

Explanation: The inaccurate statement is the one saying the firm can depend entirely on the sponsor’s review. In a DPP offering, the sponsor or dealer manager may have important functions, but a soliciting dealer still has its own supervisory obligations and should not use documents that misstate those roles. The core issue is role clarity. Offering documents and related selling materials should accurately describe what the sponsor, dealer manager, and soliciting dealers each do. Even if the sponsor or dealer manager performs centralized tasks, a soliciting dealer generally remains responsible for supervising its associated persons and following its own procedures for suitability and communications review.

When the prospectus summary conflicts with the selling agreement, the principal should treat that as a supervisory and disclosure problem. The proper response is to stop use of the package, reconcile the documents, and ensure internal procedures match the final role allocation. Misstating that the sponsor’s review replaces the firm’s own supervision is the prohibited view.

The key takeaway is that centralized support does not erase the selling firm’s supervisory responsibility.

Question 10

Topic: Function 3 - Compliance with Financial Responsibility Rules

A Series 39 principal compares two DPP broker-dealers. Firm A is a fully disclosed introducing firm for limited-partnership offerings and does not carry customer accounts or hold customer funds or securities. Firm B sells similar DPP interests but carries customer accounts and holds customer funds pending settlement. Under FINRA Rule 2261, which conclusion best matches the required customer disclosure of financial condition?

• A. Firm A only, because it solicits DPP sales
• B. Firm B only, because it carries accounts and holds customer funds
• C. Both firms, because each participates in DPP distributions
• D. Neither firm, because issuer offering documents cover financial condition

Best answer: B

Explanation: The key factor is whether the broker-dealer itself carries customer accounts or holds customer funds or securities. In this comparison, Firm B has that direct customer asset relationship, so its financial condition is the one that must be communicated under Rule 2261. Rule 2261 is about the broker-dealer whose financial condition directly matters to customers because it carries their accounts or has custody of customer funds or securities. A fully disclosed introducing firm that does not carry accounts and does not hold customer assets is not in the same position as a firm that does. Here, both firms sell DPPs, but only Firm B has the customer-carrying and custody role.

That means the supervisory conclusion should focus on operational status, not product type or selling activity:

• Selling DPP interests alone is not the trigger.
• Public versus private offering status is not the trigger.
• The decisive factor is whether the member itself carries accounts or holds customer funds or securities.

The closest trap is treating participation in the same distribution as enough, but Rule 2261 focuses on the member’s financial-responsibility relationship to customers.

Question 11

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A Series 39 principal at a broker-dealer limited to DPP business is updating pre-clearance procedures for employee and customer investments. Which request most clearly makes a FINRA Rule 5130 review relevant?

• A. A customer seeks shares of a listed REIT in the secondary market.
• B. An associated person seeks units in a registered public oil-and-gas limited partnership.
• C. An associated person seeks shares in an operating company’s initial common stock public offering.
• D. A retail customer seeks membership interests in a Regulation D real estate LLC offering.

Best answer: C

Explanation: Rule 5130 matters when the transaction involves a new issue, which is an initial equity public offering. A DPP principal would therefore focus on the request for an operating company IPO, not on DPP subscriptions, private placements, or secondary-market trades. The core concept is that Rule 5130 is an IPO-allocation rule, not a general DPP-offering rule. Its relevance is triggered when an associated person or customer is seeking to buy a new issue—an initial equity public offering. In the scenario, the operating company’s initial common stock public offering is the only request that fits that description, so the principal must consider restricted-person status and related supervisory controls.

By contrast, a registered public DPP offering, a Regulation D private placement, and a secondary-market REIT trade are not the type of initial equity public offering that triggers Rule 5130 review. The key differentiator is the presence of an IPO of equity securities, not simply that the investment is being offered to the public or involves a real estate or partnership structure.

Question 12

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A Series 39 principal is reviewing compensation classification for a public DPP LLC offering. The sponsor proposes to give selling participants a carried interest tied to units sold, annual trail payments based solely on investments they originally sold, and issuer units as part of the distribution arrangement. For underwriting-compensation review, which statement is INCORRECT?

• A. Continuing payments based solely on prior sales may be compensation.
• B. Issuer units given to a selling participant are excluded because they are securities, not cash.
• C. Classification turns on the economic benefit received, not just the payment label.
• D. A carried interest granted for distribution activity is compensation.

Best answer: B

Explanation: The inaccurate statement is the one treating issuer units as outside compensation review just because they are securities. In DPP underwriting-compensation analysis, economic benefits tied to distribution activity can count whether they are paid as carried interest, ongoing trails, or non-cash securities. The key concept is that underwriting-compensation review looks at the value a selling participant receives in connection with the distribution of the offering, not merely whether the payment is immediate cash. If a carried interest is granted because the firm helped sell the DPP, it can be compensation. If ongoing trail or continuing payments are based on securities previously sold, they also may be compensation even though they are paid over time. Securities, units, or other ownership interests received by a selling participant can likewise be compensation when they are part of the distribution arrangement. The important question is the link to selling activity and the economic benefit conferred, not the form or label of the payment. The common trap is assuming only upfront cash commissions count.

Question 13

Topic: Function 3 - Compliance with Financial Responsibility Rules

A Series 39 principal reviews a month-end capital memo for a broker-dealer that sells only DPP offerings. For this question, a liability may be treated as capital support only if it is covered by a written subordination agreement, has at least 12 months remaining to maturity, and is not payable on demand.

Ordinary liabilities already included in aggregate indebtedness: $420,000
Affiliate note A: $150,000 — written subordination agreement approved; 18 months to maturity; no acceleration
Affiliate note B: $90,000 — labeled "subordinated" internally; payable on demand

What aggregate indebtedness should the firm use in this computation?

• A. $660,000
• B. $570,000
• C. $420,000
• D. $510,000

Best answer: D

Explanation: A subordinated liability can function as capital support only if it meets the stated conditions. Here, note A qualifies, but note B does not because it is payable on demand, so only note B is added to the firm’s existing aggregate indebtedness. The key issue is classification before calculation. A liability that satisfies the stated subordination conditions can be treated as capital support rather than ordinary indebtedness, while a note that is callable on demand does not qualify even if someone labels it “subordinated.”

Start with the firm’s existing aggregate indebtedness of $420,000. Then review the two notes:

• Note A qualifies and is not added as ordinary indebtedness.
• Note B fails because it is payable on demand, so it remains ordinary indebtedness.

That gives a total of $510,000. The closest mistake is to treat the internal label on note B as controlling, but the actual terms determine whether the liability can support capital.

Question 14

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

During due diligence on a public non-traded REIT, an associated person is told by the issuer’s CFO that the REIT will suspend its share repurchase program and cut distributions next week, and that the information is confidential until a board announcement. The associated person immediately reports this to the firm’s Series 39 principal. Which response by the principal is NOT appropriate?

• A. Limit the information to a need-to-know group and document the source and timing.
• B. Stop solicitations and new recommendations in the REIT pending compliance review.
• C. Escalate the matter immediately to designated compliance or legal personnel.
• D. Allow representatives to keep recommending the REIT because current sales materials are still approved.

Best answer: D

Explanation: When a firm may possess confidential issuer information that could be material and nonpublic, the principal’s role is to escalate, contain, and restrict activity until compliance or legal determines the proper handling. Continuing recommendations because existing materials were previously approved is not acceptable. This tests the supervisory response to possible material nonpublic information. The information about an upcoming suspension of repurchases and a distribution cut is likely material, and it is plainly nonpublic because the issuer said it will not be announced until next week. Once the associated person reports it, the Series 39 principal should promptly escalate to the firm’s designated compliance or legal function, limit internal dissemination, document the facts, and stop solicitations or new recommendations while the firm decides whether to place the product on a watch or restricted list and what further controls are needed.

Previously approved sales literature does not solve the problem. A firm cannot continue recommending a security when it may already possess newer confidential issuer information that would matter to investors.

Question 15

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A DPP principal reviews a draft website piece for a public limited partnership offering. No other disclosure appears in the draft.

Offering price per unit: $25
Projected monthly distribution: $0.125 per unit
Sponsor forecast: 40% of first-year distributions may be paid from offering proceeds during lease-up
Headline: "SEC-approved public income program paying 8% annually"

What is the best principal response before approving this communication?

• A. Approve it after changing only the annual rate to 6%.
• B. Approve it after removing only the SEC approval reference.
• C. Approve it because the prospectus covers the missing details.
• D. Reject it until the rate is changed to 6%, the SEC approval claim is removed, and the source of distributions is disclosed.

Best answer: D

Explanation: The projected distribution is \$0.125 per month on a \$25 unit, which annualizes to 6%, not 8%. A principal also cannot approve a communication that implies SEC approval or omits the material fact that 40% of early distributions may come from offering proceeds. This is a communications-liability review issue. The principal must stop a public communication that is misleading by calculation, by implication, or by omission. Here, the annualized distribution is computed from the figures shown: \$0.125 per month equals \$1.50 per year, and \$1.50 divided by \$25 equals 6%. The headline therefore overstates the rate.

The draft also improperly suggests that the SEC has approved the offering, which is not permitted. In addition, omitting that 40% of first-year distributions may come from offering proceeds is material because it affects how an investor would understand the advertised income. The communication should not be approved until all of those defects are corrected. Correcting only the math would still leave an impermissible approval implication and a material omission.

Question 16

Topic: Function 3 - Compliance with Financial Responsibility Rules

Under SEC Rule 17a-3 and FINRA Rule 4511, which records must support a broker-dealer’s proof of money balances, trial balances, aggregate-indebtedness calculations, and net-capital calculations?

• A. General ledger and related asset, liability, income, expense, and capital account records
• B. Customer complaint files and associated-person disciplinary records
• C. Daily blotters of purchases, sales, receipts, and deliveries
• D. Securities position records showing long and short locations

Best answer: A

Explanation: The required support comes from the firm’s ledger-based financial books and records. Those records reflect assets, liabilities, income, expense, and capital accounts, which are the foundation for proof of money balances, trial balances, and net-capital-related computations. This question turns on the distinction between operational records and financial-accounting records. For proof of money balances, trial balances, aggregate indebtedness, and net capital, the supporting books must come from the firm’s ledger system and related financial account records. Those records show the broker-dealer’s assets, liabilities, income, expenses, and capital, which are exactly the inputs needed for these financial responsibility calculations.

Blotters, securities position records, and complaint files are all required records for other purposes, but they do not serve as the core support for these balance-sheet and net-capital computations. The key takeaway is that financial responsibility calculations must be grounded in the firm’s general ledger and supporting financial records, not in trading, complaints, or position-only documents.

Question 17

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A Series 39 principal is reviewing the firm’s standard account agreement used for investors in public DPP offerings. The agreement includes a predispute arbitration clause. Which statement by the principal is INCORRECT under FINRA requirements?

• A. The clause cannot restrict claims otherwise eligible for FINRA arbitration.
• B. The disclosure must be highlighted immediately before the signature line.
• C. The agreement cannot include terms inconsistent with FINRA arbitration rules.
• D. Providing the customer a copy is optional if the clause is highlighted.

Best answer: D

Explanation: A member may use a predispute arbitration clause, but Rule 2268 imposes specific presentation and delivery conditions. Highlighting the clause is not enough by itself; the customer must also receive a copy of the agreement when it is signed. The core concept is supervisory review of predispute arbitration agreements. For a DPP firm, a principal reviewing account-opening documents must confirm that any arbitration clause complies with FINRA requirements before the form is used with customers. That includes proper disclosure placement, no terms that undermine FINRA arbitration rights or rules, and delivery of a copy of the agreement to the customer at signing.

A practical review should confirm that:

• the disclosure is highlighted and placed immediately before the signature line
• the clause does not limit claims that may be brought in FINRA arbitration
• the agreement does not contain terms inconsistent with FINRA arbitration rules
• the customer receives a copy of the executed agreement at signing

The statement claiming delivery is optional fails because formatting requirements do not replace the separate copy-delivery requirement.

Question 18

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A Series 39 principal reviews a public DPP offering with a stated 10% cap on underwriting compensation, measured against $10,000,000 of gross offering proceeds. The proposed payments are:

Selling commissions................$700,000
Dealer-manager fee.................$100,000
Affiliate wholesaler cash payments.$125,000
Wholesaler sales-meeting travel....$25,000
Offering document printing.........$50,000

If the wholesaler items are tied to distribution support, what underwriting-compensation percentage should the principal use for the review?

• A. 9.5%
• B. 9.0%
• C. 10.0%
• D. 8.0%

Best answer: A

Explanation: Wholesaling compensation and related sales-support expenses tied to distribution are treated as underwriting compensation in a public DPP offering. Here, the principal should include both wholesaler line items with the selling commissions and dealer-manager fee, but not offering document printing. The key issue is classification. In a public DPP offering, cash compensation paid for wholesaling activity and related sales-support expenses are part of underwriting compensation when they are tied to distribution of the offering. That means the principal should include the affiliate wholesaler cash payments and the wholesaler sales-meeting travel in the compensation review.

The calculation is:

• selling commissions: $700,000
• dealer-manager fee: $100,000
• wholesaler cash payments: $125,000
• wholesaler sales-meeting travel: $25,000

Total underwriting compensation = $950,000.

$950,000 divided by $10,000,000 of gross offering proceeds equals 9.5%.

The closest trap is adding offering document printing, which is not an underwriting-compensation item in this fact pattern.

Question 19

Topic: Function 3 - Compliance with Financial Responsibility Rules

A DPP broker-dealer relies on a customer-protection exemption that is available only if it does not carry customer accounts and promptly transmits customer funds. On Friday, operations mistakenly deposits several investor subscription checks into the firm’s operating account instead of forwarding them to the issuer’s escrow account, and the funds may remain there until Tuesday. Which supervisory response is INCORRECT?

• A. Suspend similar processing until the control failure is corrected.
• B. Escalate the issue immediately to the FINOP and compliance staff.
• C. Continue relying on the exemption because the deposit was temporary.
• D. Forward the customer funds to the proper escrow without delay.

Best answer: C

Explanation: The exemption depends on not holding customer funds and on prompt transmission. Once investor checks are deposited into the firm’s operating account, the principal must treat the event as a potential loss or breach of the exemption rather than assuming a temporary error is harmless. This question tests supervisory response to a possible loss of the customer-protection exemption. A firm relying on that exemption must avoid carrying customer accounts and must promptly transmit customer funds. Here, customer subscription checks were deposited into the firm’s operating account, so the firm actually held customer funds instead of promptly forwarding them to escrow.

The principal’s appropriate response is to treat the incident seriously: correct it immediately, escalate to finance and compliance, determine whether the firm’s exempt status has been compromised, and stop the faulty process until controls are repaired. The key point is that intent matters less than actual handling. Saying the exemption can still be relied on just because the deposit was temporary is not an appropriate supervisory conclusion.

Question 20

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A registered representative at a broker-dealer that sells public DPP offerings has firm approval to serve, without compensation, as trustee of a longtime customer’s revocable trust. While acting as trustee, she learns the trust will receive $600,000 from the sale of a private business next month, before the beneficiaries have been informed. She asks the DPP principal how she may proceed. Which statement is INCORRECT under FINRA conduct rules and sound supervision?

• A. She may share the upcoming cash-inflow details with the firm’s wholesaler so solicitation can begin early.
• B. The trustee role should be documented and monitored as a conflict requiring heightened supervision.
• C. Information learned as trustee should not be used for personal benefit or other business purposes.
• D. Any DPP recommendation to the trust still requires normal suitability review and principal approval.

Best answer: A

Explanation: The inaccurate statement is the one permitting internal sharing of confidential trust information for sales purposes. Information obtained while acting in a fiduciary capacity cannot be misused to benefit the representative or the firm, and the principal should supervise the trustee role as a conflict area. The core issue is misuse of information obtained in a fiduciary capacity. When a representative serves as trustee, she owes duties of confidentiality and loyalty in that role, and the firm must treat the arrangement as a conflict-risk area requiring documentation and supervision. Learning that the trust will soon receive substantial proceeds does not give the representative or the firm a license to circulate that information so a wholesaler or sales desk can prepare a solicitation.

A sound principal response is to:

• document the outside fiduciary role,
• apply heightened supervision,
• require normal suitability review for any DPP recommendation, and
• prevent use of fiduciary information for personal or firm advantage.

The closest distractors are acceptable because they describe supervision and suitability controls rather than exploitation of confidential fiduciary information.

Question 21

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

A DPP principal is reviewing written sales guidance for a registered public limited partnership offering. The registration statement has been filed, but the offering is not yet effective. Which instruction to representatives is INCORRECT?

• A. Use the preliminary prospectus during the waiting period.
• B. After effectiveness, the final prospectus must precede or accompany confirmation.
• C. If a customer already received a preliminary prospectus, no final prospectus is needed.
• D. Do not complete any sale before the offering becomes effective.

Best answer: C

Explanation: In a registered DPP offering, a preliminary prospectus may be used during the waiting period to discuss the offering, but it is not the document used to complete the sale. Once the offering is effective, the final prospectus must precede or accompany the confirmation. The key distinction is between the waiting period and the post-effective sale. After the registration statement is filed, representatives may circulate a preliminary prospectus and discuss the offering with investors, but they may not complete the sale before effectiveness. When the offering becomes effective, the final prospectus is the operative disclosure document for the transaction, and it must be delivered before or with the confirmation of sale. An investor’s earlier receipt of a preliminary prospectus does not eliminate that obligation. The common error is treating the red herring as a substitute for the effective prospectus, which it is not.

Question 22

Topic: Function 3 - Compliance with Financial Responsibility Rules

A DPP broker-dealer may use a $5,000 minimum net capital requirement only if it promptly transmits all investor funds and does not otherwise receive or hold customer funds or securities; otherwise its minimum is $25,000. Based on the report below, what is the firm’s net capital status?

Tentative net capital: $22,000
Customer securities held: none
10 subscription checks payable to "ABC Escrow Agent" sent same day
2 subscription checks for $5,000 each payable to the broker-dealer and deposited overnight before forwarding

• A. Minimum $25,000 applies; excess is $3,000.
• B. Minimum $25,000 applies; deficiency is $3,000.
• C. Minimum $5,000 applies; excess is $17,000.
• D. Minimum $25,000 applies; deficiency is $13,000.

Best answer: B

Explanation: The lower minimum applies only when the firm promptly transmits all investor funds and does not receive or hold them. Here, two subscription checks were payable to the broker-dealer and sat in the firm’s bank account overnight, so the firm must use the $25,000 minimum; compared with $22,000 tentative net capital, that creates a $3,000 deficiency. This item turns on whether the firm handled customer funds. Checks made payable directly to the escrow agent and sent the same day do not prevent use of the lower standard. But once subscription checks are payable to the broker-dealer and deposited in the firm’s bank account, the firm has received and held customer funds, so the lower $5,000 standard is unavailable.

The calculation is then straightforward:

• Use the $25,000 minimum.
• Compare tentative net capital of $22,000 to that minimum.
• Deficiency = $25,000 - $22,000 = $3,000.

The closest trap is treating the overnight deposit as if it were still prompt transmittal to escrow.

Question 23

Topic: Function 2 - Sales Supervision, General Supervision of Employees, Regulatory Framework of FINRA

A DPP principal is reviewing seminar slides for representatives who discuss retirement-plan assets with clients considering a public DPP. Which slide statement is INCORRECT and should be removed before approval?

• A. A 401(k) plan is commonly sponsored by a private-sector employer.
• B. A 457 plan is generally associated with state or local governments and certain tax-exempt employers.
• C. A Keogh (HR10) plan is primarily for employees of governmental entities.
• D. A 403(b) plan is commonly used by public schools and certain tax-exempt employers.

Best answer: C

Explanation: The inaccurate statement misidentifies the typical users of a Keogh or HR10 plan. Those plans are associated with self-employed persons and some small business structures, while governmental employees are more commonly linked to 457 arrangements. This item tests recognition of the major retirement plan types a DPP principal may see in rollover and suitability supervision. The key distinction is who typically sponsors or participates in each plan. A 401(k) is commonly a private-sector employer plan. A 403(b) is typically used by public schools and certain tax-exempt organizations. A 457 plan is generally tied to state or local governments and, in some cases, certain tax-exempt employers. By contrast, a Keogh, also called an HR10 plan, is traditionally a retirement plan for self-employed individuals and certain unincorporated businesses.

When a representative training piece mixes up plan types, the principal should correct it before use because retirement-plan classification affects rollover discussions and supervisory review. The closest confusion here is between Keogh plans and governmental plans such as 457 arrangements.

Question 24

Topic: Function 1 - Structure and Regulation of Direct Participation Program Offerings

During principal review of a private DPP limited partnership subscription, the purchaser representation page is unsigned, the investor checked annual income below the program minimum, and a handwritten note elsewhere says the investor “meets the net worth test.” The registered representative says the customer verbally confirmed eligibility and asks that the subscription be accepted now and corrected later. Which action by the principal is NOT appropriate?

• A. Return the subscription for completed, consistent representations.
• B. Accept the subscription based on the representative’s oral confirmation.
• C. Document the inconsistency and require corrected, signed pages before acceptance.
• D. Keep the investor’s funds under the offering’s escrow procedures until the documents are cured and the subscription is accepted.

Best answer: B

Explanation: A DPP principal should not accept a subscription that is missing required purchaser representations or contains conflicting eligibility information. Oral assurances from the representative do not put the documents in good order; the file must be corrected and signed before acceptance. The core supervisory issue is whether the subscription is in good order for acceptance. Required purchaser representations help establish that the investor meets the offering’s eligibility and suitability standards, so missing signatures or conflicting financial representations must be resolved before the principal approves the subscription. The proper response is to stop the acceptance process, obtain corrected written representations, and preserve a clear record of the deficiency and cure. Investor funds should continue to be handled under the offering’s prescribed procedures, typically remaining in escrow until acceptance. A representative’s verbal statement is not an adequate substitute for the investor’s completed and consistent written subscription documents. The tempting alternatives all involve curing, documenting, or properly holding the subscription rather than approving a defective file.

In this section

• Series 39: DPP Offering Regulation
  Try 10 focused Series 39 questions on DPP Offering Regulation, with explanations, then continue with the full Securities Prep practice test.
• Series 39: Sales and Employee Supervision
  Try 10 focused Series 39 questions on Sales and Employee Supervision, with explanations, then continue with the full Securities Prep practice test.
• Series 39: Financial Responsibility Rules
  Try 10 focused Series 39 questions on Financial Responsibility Rules, with explanations, then continue with the full Securities Prep practice test.
• Free Series 39 Full-Length Practice Exam: 100 Questions
  Try 100 free Series 39 practice questions across the official topic areas, with answers and explanations, then continue with the full Securities Prep question bank.