A real estate direct participation program acquires already-built apartment buildings that are currently generating rental income. This is generally categorized as a(n):

Existing/income property program

An equipment leasing direct participation program generates cash flow primarily from:

Lease payments made by companies using the equipment

Dividends from the equipment manufacturer

Capital gains from daily equipment trading

A representative cold-calling prospects about a new direct participation program offering must restrict outbound calls to which general time window under telemarketing rules?

8 a.m. to 9 p.m. in the recipient's time zone

7 a.m. to 10 p.m. in the firm's time zone

Any time except federal holidays

A representative exclusively sends direct participation program performance data to a bank's trust department, which meets the definition of an institutional investor. This communication is best classified as:

Retail communication requiring prior principal approval before use

A representative purchases a prospect lead list from a third-party data vendor and plans to cold-call those numbers about a direct participation program offering. Before making the calls, the representative should first:

Cross-reference the numbers against the national and any applicable firm-specific do-not-call lists

Obtain written consent from FINRA before calling

Register the lead list with the SEC

A direct participation program wholesaler gives marketing materials to an independent investment adviser, intending for the adviser to pass them along to the adviser's retail clients. Because the materials are ultimately intended for retail investors, they remain subject to:

The same communications-with-the-public standards as if the materials were given directly to retail customers

No additional review since the adviser is a professional

Institutional-communication standards instead

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QUESTION 1 / 60Provides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate RecordsEasy0/0

A real estate direct participation program purchases undeveloped land, generates no rental income, and relies entirely on future appreciation. This is a(n):

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1. A real estate direct participation program purchases undeveloped land, generates no rental income, and relies entirely on future appreciation. This is a(n):
- A. Existing (income) property program
- B. New construction program
- C. Government-assisted housing program
- D. Raw land program
Show answer & explanation
Answer: D
A program built around undeveloped land with no rental income and reliance on appreciation for any return is a raw land program, distinguished from programs involving new construction or already income-producing existing properties.
2. A real estate direct participation program acquires already-built apartment buildings that are currently generating rental income. This is generally categorized as a(n):
- A. Exploratory program
- B. New construction program
- C. Existing/income property program
- D. Raw land program
Show answer & explanation
Answer: C
Acquiring already income-producing property rather than undeveloped land or ground-up construction is the defining feature of an existing, or income, property program, which typically carries a different risk profile than raw land or new construction programs.
3. An equipment leasing direct participation program generates cash flow primarily from:
- A. Lease payments made by companies using the equipment
- B. Dividends from the equipment manufacturer
- C. Capital gains from daily equipment trading
- D. Interest on cash reserves only
Show answer & explanation
Answer: A
Equipment leasing programs earn revenue from lease payments made by companies that use the underlying equipment, rather than from manufacturer dividends, passive interest income, or actively trading the equipment itself, which is not how these programs operate.
4. Equipment leasing direct participation programs typically pass through which tax benefit to investors, reflecting the gradual wearing-out of the underlying equipment?
- A. Depreciation deductions
- B. Dividends-received deduction
- C. Foreign tax credit
- D. Depletion allowance
Show answer & explanation
Answer: A
Depreciation deductions reflect the wearing-out of tangible equipment over its useful life and are the tax benefit associated with equipment leasing programs, whereas depletion applies to extracting natural resources and the other two items are unrelated tax concepts.
5. A representative cold-calling prospects about a new direct participation program offering must restrict outbound calls to which general time window under telemarketing rules?
- A. 7 a.m. to 10 p.m. in the firm's time zone
- B. 9 a.m. to 5 p.m. nationally
- C. 8 a.m. to 9 p.m. in the recipient's time zone
- D. Any time except federal holidays
Show answer & explanation
Answer: C
Telemarketing rules restrict outbound sales calls to a window measured in the call recipient's own local time zone, and the other listed windows and holiday-only restriction do not reflect the actual permitted calling hours.
6. A registered representative sends an identical marketing piece describing a new direct participation program offering to dozens of retail clients at the same time. Under FINRA's communications-with-the-public framework, this broad, templated distribution is best classified as:
- A. Institutional communication
- B. Correspondence
- C. A research report
- D. Retail communication
Show answer & explanation
Answer: D
Templated material distributed broadly to many retail investors at once is treated as retail communication, distinguished from correspondence, which involves individualized, one-on-one communication with a single retail investor rather than a mass mailing.
7. A representative exclusively sends direct participation program performance data to a bank's trust department, which meets the definition of an institutional investor. This communication is best classified as:
- A. Correspondence
- B. Advertising
- C. Retail communication requiring prior principal approval before use
- D. Institutional communication
Show answer & explanation
Answer: D
Because the recipient is an institutional investor rather than a retail customer, this communication falls under the institutional-communication category, which carries different review standards than materials intended for retail advertising or one-on-one retail correspondence.
8. A representative runs a public educational seminar to attract prospects for a real estate direct participation program and distributes an identical slide deck to all fifty attendees. This slide deck is best classified as:
- A. Correspondence
- B. A prospectus supplement
- C. An internal-use-only document
- D. Retail communication
Show answer & explanation
Answer: D
Material prepared for broad distribution to a seminar audience of retail prospects functions the same way as other mass-distributed retail marketing pieces and is treated as retail communication, not as a one-on-one correspondence, a formal prospectus supplement, or an internal document shielded from public communication standards.
9. A representative purchases a prospect lead list from a third-party data vendor and plans to cold-call those numbers about a direct participation program offering. Before making the calls, the representative should first:
- A. Register the lead list with the SEC
- B. Cross-reference the numbers against the national and any applicable firm-specific do-not-call lists
- C. Verify each lead's net worth
- D. Obtain written consent from FINRA before calling
Show answer & explanation
Answer: B
Purchased lead lists must be checked against the applicable do-not-call registries before calling, since obtaining a list from a vendor does not exempt the caller from telemarketing restrictions, and neither FINRA consent nor SEC registration of the list is a real compliance step.
10. A direct participation program wholesaler gives marketing materials to an independent investment adviser, intending for the adviser to pass them along to the adviser's retail clients. Because the materials are ultimately intended for retail investors, they remain subject to:
- A. The same communications-with-the-public standards as if the materials were given directly to retail customers
- B. Institutional-communication standards instead
- C. No additional review since the adviser is a professional
- D. Only a state blue-sky filing
Show answer & explanation
Answer: A
The applicable communication standard is determined by the ultimate retail audience, not by the intermediary who distributes the material, so materials destined for retail investors must meet retail communication standards even when handed off through a third party such as an adviser.
11. A representative wants to include a satisfied investor's quote praising a direct participation program in a printed advertisement. Using this kind of testimonial generally requires:
- A. Omission of the investor's name only
- B. No special disclosure since it is a factual statement
- C. Written approval from the investor's accountant
- D. Disclosure of whether compensation was paid and a statement that the experience may not be typical
Show answer & explanation
Answer: D
Testimonials in advertising must be accompanied by disclosure of any compensation paid for the endorsement and a statement that the experience described may not represent other investors' results, since presenting the quote as purely factual without disclosure would be misleading.
12. A representative sends a personalized email to a single client, answering a specific question about a direct participation program's expected distribution schedule. This one-to-one communication is classified as:
- A. Institutional communication
- B. A prospectus
- C. Sales literature
- D. Correspondence
Show answer & explanation
Answer: D
A communication addressed individually to a single retail investor, rather than distributed broadly to multiple recipients, is treated as correspondence rather than as broadly-distributed sales literature, an institutional communication, or a formal offering document.
13. An advertisement for a direct participation program highlights strong past distributions and implies that similar payouts are guaranteed going forward. What is the primary compliance problem with this advertisement?
- A. Implying guaranteed future returns based solely on past performance is a misleading statement
- B. Advertising is prohibited entirely for direct participation programs
- C. Only written advertisements may reference past performance
- D. Past-performance disclosures are required only for oil and gas programs
Show answer & explanation
Answer: A
Suggesting that past results guarantee similar future distributions is a misleading statement because past performance does not assure future outcomes, and this concern applies broadly across communication formats and program types rather than being limited to a single medium or product category.
14. Before a newly registered representative begins making cold calls about a direct participation program using a prepared written script, firm supervisory procedures typically require:
- A. Principal review and approval of the script as a form of communication with the public
- B. SEC registration of the script
- C. Filing the script with the transfer agent
- D. No review, since scripts are considered the representative's own words
Show answer & explanation
Answer: A
A written script used to solicit retail prospects is a form of communication with the public and generally must be reviewed and approved by a principal before use, rather than being exempt from review or requiring filing with entities that have no role in communications oversight.
15. A representative posts on a personal social media account about a direct participation program's projected future cash distributions, without obtaining firm approval beforehand. What is the compliance concern with this post?
- A. It is permitted as long as the post is labeled as a personal opinion
- B. It only violates rules if the post is a paid promotion
- C. It violates the requirement for prior principal review of retail communications containing specific performance projections
- D. It is permitted since personal opinions expressed on social media are exempt from firm review
Show answer & explanation
Answer: C
Content describing specific projected returns for a security is subject to the same review and reasonable-basis standards as other retail communications, so posting it without prior firm approval is a violation regardless of the platform, a personal-opinion label, or whether the post was compensated.
16. Marketing materials for a direct participation program include a specific projected internal rate of return for prospective investors. To use these projections, a firm generally needs:
- A. Removal of all numerical projections entirely
- B. No special support, since projections are treated as opinions
- C. A reasonable basis for the projections and clear disclosure that they are not guaranteed
- D. Approval from the program's transfer agent
Show answer & explanation
Answer: C
Specific performance projections require a reasonable basis for the numbers presented along with clear disclosure that the figures are not guaranteed, since simply labeling projections as opinion does not satisfy communication standards, and neither transfer-agent approval nor an outright ban on projections reflects the actual requirement.
17. A representative wants to use an independently prepared newspaper article praising a direct participation program sponsor's track record in a mailing to retail prospects. Distributing this reprint:
- A. Still requires the firm to review the piece for balance and accuracy before use
- B. Is prohibited outright regardless of content
- C. Is reviewed only if the article criticizes a competitor
- D. Requires no review since the firm did not write it
Show answer & explanation
Answer: A
Reprinting third-party material for use with retail investors does not exempt the firm from its review obligations, so the piece must still be evaluated for balance and accuracy before distribution, rather than being automatically exempt, automatically banned, or reviewed only in specific narrow circumstances.
18. A representative mails a postcard to a purchased list of prospects inviting them to a free educational seminar about direct participation programs, without naming any specific offering. This invitation is best understood as:
- A. Treated as a prospectus
- B. Still subject to communications-with-the-public standards because it references the firm and investment topics
- C. Exempt from any communications rules because no specific product is named
- D. Automatically classified as correspondence
Show answer & explanation
Answer: B
Even without naming a specific product, a piece that references the firm and general investment topics and is distributed broadly to prospects is still subject to applicable communication standards, rather than falling outside those rules simply because no specific security is named.
19. A representative places an outbound call about a direct participation program and, reaching no one, leaves a voicemail describing the offering. Regarding telemarketing time-of-day and do-not-call restrictions, this voicemail:
- A. Requires no compliance with do-not-call lists
- B. May occur at any hour since it is asynchronous
- C. Is not subject to the same time-of-day and do-not-call restrictions since no conversation occurred
- D. Remains subject to the same restrictions as a live call
Show answer & explanation
Answer: D
The restrictions apply to the act of placing the call itself, not merely to a completed live conversation, so leaving a voicemail does not exempt the call from the same time-of-day and do-not-call requirements that would apply had the prospect answered.
20. A direct participation program wholesaler prepares a generic slide presentation about the sponsor's general market outlook, without naming any specific offering, for use with any broker-dealer's retail clients. This kind of generic market-commentary piece is best understood as:
- A. Classified automatically as a research report
- B. A form of communication with the public subject to content standards even without naming a specific product
- C. Unregulated opinion with no applicable standards
- D. Exempt entirely from communications rules
Show answer & explanation
Answer: B
Material distributed to retail investors that discusses investment topics is generally treated as a communication with the public subject to balance and accuracy standards, even when it stops short of naming a specific security, rather than being automatically exempt or reclassified as a formal research report.
21. Which factor is least relevant when a representative evaluates whether a direct participation program is suitable for a particular customer?
- A. The customer's favorite investment sector as a personal hobby interest
- B. The customer's tax bracket and ability to use passive losses
- C. The customer's liquidity needs
- D. The customer's net worth and risk tolerance
Show answer & explanation
Answer: A
Liquidity needs, tax situation, and net worth and risk tolerance all directly affect whether an illiquid, tax-driven investment fits a customer's circumstances, while a customer's personal interest in a sector as a hobby has no bearing on the financial suitability analysis.
22. A trust wants to invest in a real estate direct participation program. Before opening the account, the firm should obtain documentation establishing:
- A. Nothing additional beyond an individual account form
- B. The trustee's personal net worth only
- C. The trust's social media presence
- D. Who has authority to act on behalf of the trust and the scope of the trust's investment powers
Show answer & explanation
Answer: D
Because a trust acts through a trustee under powers defined in the trust document, the firm needs to confirm who is authorized to act and what investment powers the trust has, information that goes well beyond what an individual account form or the trustee's personal finances alone would capture.
23. Before placing trades of his own choosing in a client's account, what authorization must a DPP representative first obtain?
- A. Verbal permission renewed daily
- B. No authorization if the account holds only direct participation programs
- C. Approval from a state securities regulator
- D. Written authorization from the customer and acceptance of that authority by the firm
Show answer & explanation
Answer: D
Discretionary trading authority requires documented written authorization from the customer along with the firm's acceptance of that authority, and this requirement does not disappear simply because the account happens to hold only direct participation programs, nor is it satisfied by informal verbal permission or state regulatory sign-off.
24. In a direct participation program organized as a limited partnership, which party bears unlimited personal liability for the partnership's obligations?
- A. All limited partners jointly
- B. The escrow agent
- C. The general partner
- D. The transfer agent
Show answer & explanation
Answer: C
The general partner manages the partnership and bears unlimited personal liability for its obligations, which is the key structural tradeoff for limited partners, whose liability is capped, and neither the transfer agent nor the escrow agent takes on any ownership liability at all.
25. An oil and gas direct participation program that drills in areas with no proven reserves, seeking entirely new discoveries, is best classified as a(n):
- A. Income program
- B. Developmental program
- C. Royalty program
- D. Exploratory (wildcat) program
Show answer & explanation
Answer: D
Drilling in unproven areas in search of new discoveries carries the highest geological risk and defines an exploratory, or wildcat, program, in contrast to developmental programs that drill near known reserves or income programs that acquire already-producing wells.
26. An oil and gas direct participation program drills new wells adjacent to already-producing wells within a known field, carrying lower geological risk than a wildcat program but more risk than an income program. This is called a(n):
- A. Developmental program
- B. A combination program with no producing wells
- C. Real estate program
- D. Exploratory program
Show answer & explanation
Answer: A
Drilling near proven, producing wells within a known field reduces geological uncertainty compared to exploratory drilling while still carrying more risk than simply acquiring existing production, which is the defining feature of a developmental program.
27. Losses generated by a direct participation program are generally classified as passive losses. Under the passive activity loss rules, these losses can generally be used to offset:
- A. Capital gains from stock trading only
- B. Nothing; passive losses are never deductible
- C. Passive income from other passive activities, with limited exceptions
- D. Any type of income, including wages
Show answer & explanation
Answer: C
Passive losses are generally limited to offsetting passive income from other passive activities, with only limited exceptions, rather than being freely usable against wages or other active income, and they are not simply nondeductible in every circumstance.
28. Direct participation program investors receive which tax document reporting their share of the partnership's income, losses, deductions, and credits?
- A. Form 1099-B
- B. Form 1099-DIV
- C. Schedule K-1
- D. Form W-2
Show answer & explanation
Answer: C
Schedule K-1 reports a partner's allocated share of partnership income, losses, deductions, and credits, which differs from the dividend, wage, and brokerage-transaction reporting forms used for other kinds of investments and employment income.
29. When a direct participation program sells a depreciated asset for more than its adjusted basis, the portion of the gain attributable to previously claimed depreciation deductions may be subject to:
- A. A permanent tax exemption
- B. Depreciation recapture, taxed as ordinary income
- C. Depletion recapture
- D. A capital loss carryforward
Show answer & explanation
Answer: B
Gain attributable to depreciation deductions previously taken on an asset can be recaptured and taxed as ordinary income upon sale, rather than being permanently exempt, treated as a capital loss, or confused with depletion recapture, which is a separate concept tied to natural resource extraction.
30. A real estate direct participation program's partnership agreement permits the general partner to call for additional capital contributions from limited partners. A limited partner who fails to meet a valid capital call may face:
- A. Immediate criminal liability
- B. Automatic conversion to general partner status
- C. No consequence of any kind
- D. Dilution of their partnership interest or other remedies specified in the partnership agreement
Show answer & explanation
Answer: D
Partnership agreements typically specify remedies such as dilution of the non-contributing partner's interest for failing to meet a valid capital call, which is a real economic consequence, unlike becoming a general partner, facing criminal charges, or facing no consequence at all.
31. A 'roll-up' transaction in the direct participation program context refers to:
- A. A mandatory annual distribution to limited partners
- B. The initial escrow process before an offering closes
- C. A type of depreciation calculation
- D. The combination of several limited partnerships into a single new entity, often a REIT or master limited partnership
Show answer & explanation
Answer: D
A roll-up combines multiple limited partnerships into a single successor entity, frequently a real estate investment trust or master limited partnership, which is a structural and governance event entirely distinct from escrow procedures, depreciation calculations, or routine distributions.
32. Limited partners asked to vote on a proposed roll-up transaction are typically entitled to:
- A. Conversion of their interest into cash only, with no other options
- B. Automatic approval without any vote
- C. No information about the transaction
- D. Disclosure of the roll-up's terms and, depending on the partnership agreement, appraisal or dissenter's rights
Show answer & explanation
Answer: D
Limited partners voting on a roll-up are generally entitled to disclosure of the proposed terms and, depending on the governing partnership agreement, may have appraisal or dissenter's rights, rather than being kept uninformed, subjected to automatic approval, or limited to a single cash-only outcome.
33. Upon dissolution of a direct participation program, the general order in which proceeds from winding up are typically distributed is:
- A. Limited partners first, then creditors, then the general partner
- B. Creditors and outside obligations first, then limited partners, then the general partner's remaining interest
- C. Equally among all parties regardless of priority
- D. The general partner first in all cases
Show answer & explanation
Answer: B
Outside creditors are generally satisfied before any partner receives a distribution, with limited partners typically receiving their priority return of capital before the general partner receives its remaining residual interest, rather than partners being paid ahead of creditors or all parties sharing equally regardless of priority.
34. Before recommending a developmental oil and gas direct participation program, a representative must have a reasonable basis for believing the recommendation is suitable, based primarily on:
- A. The customer's financial situation, investment objectives, risk tolerance, and the product's features and risks
- B. The size of the commission generated
- C. The sponsor's advertising claims alone
- D. Whether the customer's neighbor also invested
Show answer & explanation
Answer: A
A reasonable-basis suitability determination requires weighing the customer's actual financial situation, objectives, and risk tolerance against the specific features and risks of the product being recommended, rather than relying on marketing claims, a third party's unrelated decision, or the compensation the recommendation would generate.
35. A retired customer with significant near-term healthcare expenses and modest liquid savings expresses interest in a non-traded, illiquid direct participation program after seeing an advertisement. Before recommending it, the representative's primary concern should be:
- A. Whether the customer has a favorite sponsor
- B. Whether the customer prefers oil and gas or real estate programs
- C. Whether the customer's liquidity needs and time horizon are compatible with an illiquid, long-term investment
- D. The customer's political preferences
Show answer & explanation
Answer: C
Given the customer's near-term cash needs and limited liquid savings, the central suitability question is whether tying up funds in a long-term, illiquid investment is compatible with those liquidity needs, not which product category or sponsor the customer might personally prefer, and certainly not unrelated personal factors.
36. A customer wants to invest the large majority of their liquid net worth into a single, illiquid direct participation program. A representative who recommends this allocation without further analysis is most exposed to which suitability concern?
- A. Overconcentration in an illiquid, high-risk asset relative to the customer's overall portfolio
- B. Excess liquidity in the account
- C. Underuse of margin borrowing
- D. Excessive diversification across too many asset classes
Show answer & explanation
Answer: A
Placing a large share of a customer's liquid net worth into one illiquid, high-risk holding creates concentration risk, since a downturn or a need for cash could disproportionately harm the customer, whereas the other listed items describe situations that are either unrelated or the opposite problem.
37. Correspondence and sales literature a representative uses when discussing direct participation programs with customers generally must be:
- A. Retained only if the customer requests a copy
- B. Stored exclusively by the representative personally with no firm oversight
- C. Discarded immediately after use
- D. Retained by the firm for the required recordkeeping period
Show answer & explanation
Answer: D
Firms are responsible for retaining communications with the public for the applicable recordkeeping period so they remain available for supervisory and regulatory review, rather than being discarded, kept only upon a customer's request, or held solely by the individual representative outside the firm's oversight.
38. A customer wants to transfer their brokerage account, including a direct participation program position, from one firm to another. The standardized industry system typically used to process this kind of account transfer is:
- A. The Federal Reserve's ACH network exclusively
- B. DTCC settlement for listed equities
- C. FedWire only
- D. ACATS
Show answer & explanation
Answer: D
The Automated Customer Account Transfer Service is the standardized industry mechanism for moving an entire brokerage account, including varied position types, between firms, which is a different function from wire transfer systems, equity settlement infrastructure, or the ACH payment network.
39. Unlike a listed stock position, transferring a direct participation program limited partnership interest to another firm, or re-registering ownership, may be complicated by:
- A. The absence of any partnership agreement
- B. The interest being freely tradable on an exchange
- C. Partnership agreement restrictions on transfer and the need for general-partner consent or updated partnership records
- D. Automatic daily net asset value pricing
Show answer & explanation
Answer: C
Partnership interests are frequently subject to transfer restrictions in the governing partnership agreement and often require the general partner's consent or updated partnership books before a change in ownership can be recognized, unlike listed securities, which settle and re-register through standardized, liquid market mechanics.
40. Before a direct participation program can be offered to residents of a given state, in addition to satisfying federal registration requirements, the offering generally must also satisfy:
- A. No additional requirements beyond the federal filing
- B. FDIC insurance requirements
- C. Only municipal bond disclosure rules
- D. Applicable state securities ('blue sky') registration or exemption requirements
Show answer & explanation
Answer: D
Offerings must generally clear applicable state securities, or blue-sky, registration or exemption requirements on top of federal registration, a separate layer of regulation that has nothing to do with municipal bond disclosure rules or deposit insurance, neither of which applies to direct participation programs.
41. A representative recommends that a customer sell an existing exchange-traded REIT holding to purchase a new non-traded real estate direct participation program with a longer expected holding period and less liquidity, without documenting a rationale tied to the customer's objectives. This recommendation is most likely to raise a suitability concern because:
- A. Exchange-traded REITs are never suitable investments
- B. Suitability rules do not apply to switch recommendations
- C. The switch increases illiquidity and costs without a demonstrated benefit matching the customer's needs
- D. Non-traded direct participation programs are always superior investments
Show answer & explanation
Answer: C
Moving from a liquid, exchange-traded holding into a longer-term, illiquid alternative increases costs and reduces flexibility, so absent a documented reason tied to the customer's actual needs, the switch looks unsuitable, and this concern has nothing to do with either product category being categorically good or bad, and switch recommendations are fully subject to suitability standards.
42. A limited partner's adjusted basis in a direct participation program interest is increased by their share of partnership income and additional contributions, and decreased by distributions received and their share of partnership losses. If distributions received in a year exceed the limited partner's adjusted basis, the excess is generally treated as:
- A. A penalty payable to the IRS
- B. Tax-free return of capital indefinitely
- C. Taxable gain, typically capital gain
- D. An increase to the partner's basis
Show answer & explanation
Answer: C
Once a limited partner's basis has been reduced to zero, further distributions can no longer be treated as a tax-free return of capital and are instead generally taxed as gain, typically capital gain, rather than continuing indefinitely tax-free, increasing basis further, or triggering an IRS penalty.
43. In a direct participation program, day-to-day management and operational decisions are primarily the responsibility of the:
- A. Clearing firm
- B. Transfer agent
- C. General partner
- D. Limited partners
Show answer & explanation
Answer: C
The general partner is responsible for managing the program's daily operations and business decisions, while limited partners are passive investors without management authority, and neither the transfer agent nor a clearing firm has any operational management role in the program.
44. If a direct participation program offering fails to reach its stated minimum-offering contingency within the offering period, the appropriate handling of escrowed subscriber funds is to:
- A. Return the funds to subscribers
- B. Roll the funds into the sponsor's next offering automatically
- C. Forward the funds to the general partner as a loan
- D. Retain the funds as a cancellation fee
Show answer & explanation
Answer: A
When a minimum-offering contingency is not met, the escrowed funds must be returned to the subscribers who provided them, since the contingency existed precisely to protect investors if the offering did not reach its target, rather than being loaned out, rolled into an unrelated offering, or kept as a fee.
45. An oil and gas direct participation program purchases interests in wells that are already producing, offering more predictable, though not guaranteed, cash flow. This type of program is classified as a(n):
- A. Developmental program
- B. Raw land program
- C. Exploratory program
- D. Income program
Show answer & explanation
Answer: D
Acquiring interests in wells already in production, rather than drilling new or unproven wells, is the defining feature of an income program, which trades higher exploration risk for more predictable, though still not guaranteed, cash flow.
46. A registered representative wants to place an outbound call to a prospective customer whose phone number is listed on the national do-not-call registry. Which circumstance would most likely permit the call under telemarketing rules?
- A. The prospect has an existing business relationship with the firm within the required recent period
- B. The call is placed before 8 a.m. local time
- C. The firm has fewer than five registered representatives
- D. The representative personally knows the prospect socially
Show answer & explanation
Answer: A
An established, recent business relationship with the firm creates a recognized exception to do-not-call restrictions, while personal acquaintance, the time the call is placed, or the size of the firm are not recognized exceptions under telemarketing compliance rules.
47. A representative offers an existing client a small thank-you gift for referring a friend who subsequently opens an account and invests in a direct participation program. Which consideration is most relevant to compliance with this referral incentive?
- A. Referral gifts to clients are absolutely prohibited in all forms
- B. Referral gifts are unregulated as long as no purchase results
- C. Referral gifts are only regulated when made to non-clients
- D. Non-cash compensation and gift-related limits and recordkeeping rules still apply to referral incentives
Show answer & explanation
Answer: D
Referral gifts are not automatically prohibited, but they remain subject to applicable non-cash compensation, gift-value, and recordkeeping rules, so the incentive must still be evaluated against those limits rather than assumed to be either fully banned or entirely unregulated.
48. Which of the following is an appropriate way for a representative to seek new business for a direct participation program offering?
- A. Promising liquidity comparable to listed stocks
- B. Guaranteeing a specific rate of return to attract investors
- C. Implying that FINRA endorses the specific program
- D. Purchasing an approved mailing list and sending firm-approved sales literature
Show answer & explanation
Answer: D
Using a properly vetted mailing list together with sales literature that has gone through required firm approval is a legitimate prospecting method, unlike guaranteeing returns, promising exchange-like liquidity for an illiquid product, or falsely suggesting regulatory endorsement, all of which are misleading and improper.
49. A customer submits a written request to a firm asking to stop receiving telemarketing calls. Regarding this firm-specific do-not-call request, which statement is accurate?
- A. It is unenforceable unless also filed with the national registry
- B. It only applies to the specific representative the customer originally spoke with
- C. It must generally be honored until the customer revokes the request
- D. It expires automatically after a fixed number of days
Show answer & explanation
Answer: C
A firm-specific do-not-call request generally remains in effect indefinitely across the firm until the customer affirmatively revokes it, rather than expiring on a fixed schedule, being limited to one individual representative, or depending on separate registration with the national list.
50. When opening a new account for a customer who intends to invest in direct participation programs, which information is essential to collect regardless of the specific document format used?
- A. The customer's tax identification information, investment objectives, and financial situation
- B. Only the customer's bank routing number
- C. Only the customer's employer's name
- D. Only the customer's mailing address
Show answer & explanation
Answer: A
A complete customer profile, including identifying tax information, investment objectives, and overall financial situation, is necessary to support suitability determinations, whereas collecting only an address, employer name, or routing number alone leaves out the information needed to evaluate whether an illiquid, higher-risk product fits the customer.
51. When opening a new account, a firm asks the customer to provide the name of a trusted contact person. The primary purpose of this contact is:
- A. To serve automatically as the customer's financial power of attorney
- B. To co-sign every future purchase order
- C. To receive the customer's confirmations instead of the customer
- D. To be contacted about the customer's whereabouts, health, or possible financial exploitation
Show answer & explanation
Answer: D
A trusted contact person exists so the firm has someone to reach out to regarding concerns about the customer's well-being, such as questions about whereabouts, health status, or suspected financial exploitation, not to co-sign transactions, receive the customer's statements, or automatically hold legal authority over the account.
52. A limited partner's financial exposure in a direct participation program is generally limited to:
- A. Only the fees paid to the broker-dealer
- B. An unlimited share of partnership debts
- C. Their initial investment plus any additional capital-call obligations they have agreed to
- D. Nothing, regardless of investment size
Show answer & explanation
Answer: C
Limited partners generally risk only their invested capital and any additional contributions they have specifically agreed to make under a capital-call provision, unlike the general partner, who faces unlimited exposure, and their risk is not simply the commissions paid nor is it zero.
53. An investor in an oil and gas program asks her representative what the depletion allowance reported on her Schedule K-1 actually represents. Which description is accurate?
- A. The amortization of organizational costs only
- B. A penalty for early withdrawal from the program
- C. The physical wearing out of drilling equipment
- D. The gradual exhaustion of a natural resource reserve as it is extracted
Show answer & explanation
Answer: D
Depletion measures the gradual exhaustion of a natural resource reserve, such as oil or gas in the ground, as it is extracted and sold, which is a distinct concept from equipment depreciation, early-withdrawal penalties, or amortizing organizational costs.
54. The at-risk rules limit a direct participation program investor's loss deductions to:
- A. The general partner's total capital contribution
- B. The amount the investor has economically at risk in the investment
- C. A fixed dollar cap set by FINRA
- D. The amount of income received from the program
Show answer & explanation
Answer: B
The at-risk rules cap deductible losses at the amount an investor has genuinely at economic risk in the investment, which is a separate limitation from the passive activity rules and is not tied to income received, a regulatory dollar cap, or the general partner's own contribution.
55. A customer asks how quickly they could sell their direct participation program interest if they needed cash next month. The most accurate response is that direct participation program interests:
- A. Trade freely on national exchanges with same-day settlement
- B. Can always be redeemed at net asset value from the sponsor on demand
- C. Generally lack an active secondary market and can be difficult or costly to sell quickly
- D. Are as liquid as money market funds
Show answer & explanation
Answer: C
Direct participation program interests typically lack an established secondary market, so investors seeking to sell before the program winds down may face delay, difficulty, or a reduced price, unlike listed securities or highly liquid cash-equivalent funds.
56. Many direct participation program partnership agreements subordinate a portion of the general partner's compensation. This subordination means:
- A. The general partner is paid before any limited partner receives a distribution
- B. The general partner receives no compensation ever
- C. Subordination applies only to depreciation deductions
- D. Certain general partner fees or profit shares are only paid after limited partners receive specified return thresholds
Show answer & explanation
Answer: D
Subordinated general partner compensation is structured so certain fees or profit shares are paid only after limited partners have received specified priority returns, aligning the general partner's incentives with investor outcomes, rather than the general partner being paid first, receiving nothing at all, or the concept relating to depreciation.
57. A firm must maintain books and records related to a customer's direct participation program account, including account-opening documents and suitability information, primarily so that:
- A. The customer's tax preparer is exempted from filing
- B. The general partner can avoid fiduciary duties
- C. The sponsor can bypass the transfer agent
- D. Regulators and the firm can verify that recommendations and account handling complied with applicable standards
Show answer & explanation
Answer: D
Retaining account-opening and suitability records allows both the firm and regulators to later verify that recommendations and account handling met applicable standards at the time they were made, which has nothing to do with bypassing the transfer agent, exempting the customer's tax preparer, or excusing the general partner from its duties.
58. Unlike a typical private, non-traded direct participation program, a master limited partnership is distinguished by:
- A. Being exempt from all federal taxation
- B. Prohibiting any distributions to unit holders
- C. Units that trade on a national securities exchange, providing greater liquidity
- D. Having no general partner
Show answer & explanation
Answer: C
A master limited partnership's units trade on a national securities exchange, giving investors far greater liquidity than a private, non-traded program's interests, while master limited partnerships still generally have a general partner, are not exempt from all taxation, and routinely make distributions.
59. Because many direct participation program interests do not trade on an active market, the value reported to investors between transactions is typically based on:
- A. Periodic appraisals or the sponsor's estimated valuation, updated less frequently than a traded security's market price
- B. Real-time market quotes
- C. The highest secondary market bid received that day
- D. The original issue price forever with no updates
Show answer & explanation
Answer: A
Absent an active trading market, sponsors typically rely on periodic appraisals or their own estimated valuations, which are updated far less often than a continuously quoted market price, rather than reflecting real-time quotes, a permanently frozen issue price, or a daily secondary-market bid that generally does not exist.
60. An investor signs a subscription agreement for a real estate direct participation program that has a stated minimum-offering contingency. Until that minimum is reached, subscriber funds are typically:
- A. Returned automatically after a fixed number of days regardless of the minimum
- B. Invested in the sponsor's other programs
- C. Immediately available to the general partner for property acquisition
- D. Held in an escrow account and not released to the program
Show answer & explanation
Answer: D
Funds subscribed before a minimum-offering contingency is satisfied are generally held in escrow rather than being released for use, protecting investors in case the offering does not reach its stated minimum, unlike immediate release to the general partner or being diverted into unrelated programs.

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Key facts: Series 22 exam

MCQ questions

70%

To pass

1h 30m

Time limit

$100

Exam fee

The Series 22 is administered by FINRA, with 50 scored questions, a 1 hour 30 minutes time limit and a passing score of 70%.

This free Series 22 practice test has 60 original questions written to FINRA's official content outline, last checked against it on August 9, 2026. Every question shows a worked explanation, and nothing here requires a signup.

As of 2026, the Series 22 exam fee is $100.

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Official sources

Every exam fact on this page traces to a primary document published by the body that administers the exam.

Direct Participation Programs Representative Qualification Examination (Series 22) — Content OutlineFINRAfinra.org
Series 22 – Direct Participation Programs Representative Exam | FINRA.orgFINRAfinra.org
1210. Registration Requirements | FINRA.orgFINRAfinra.org

Last verified against the official exam content outline: August 9, 2026

Frequently asked questions

How many questions are on a Series 22 practice test?

A well-built Series 22 practice test mirrors the real exam's 50 scored multiple-choice questions, since that is the format FINRA uses. Practicing under that same structure helps you build pacing habits before test day.

What score do I need to pass on a Series 22 practice exam?

Aim for at least 70%, the passing score FINRA requires on the actual Series 22 exam. Treating that threshold as your practice benchmark gives you an honest read on exam readiness.

How much of the practice test should cover customer information and recommendations?

About 54% of the real Series 22 exam, or roughly 27 of the 50 scored questions, tests providing customers with investment information, making recommendations, and maintaining records. A good practice set should weight that topic just as heavily.

Is this Series 22 practice test free and does it require signup?

Yes, you can start answering Series 22 practice questions immediately without creating an account or entering payment information.

How long should I practice under a timed setting before the real Series 22 exam?

Since the actual exam gives candidates 1 hour and 30 minutes for 50 scored questions, running full-length timed practice sessions at that same pace is the most realistic way to prepare.

Should practice questions cover the SIE corequisite too?

It's worth reviewing SIE-level general securities knowledge alongside Series 22 practice questions, since FINRA requires candidates to pass both the Series 22 exam and the SIE exam. Treating the two as a combined study plan avoids gaps on test day.