There are over 40,000 people every year who take the Financial Industry Regulatory Authority's Series 7 examination, with only two-thirds passing. The others need to tell their new boss that they won’t legally be able to trade securities – likely not a fun conversation to have.
The key to passing the Series 7, and all tests really, is preparation. But just putting in the hours may not be enough. You’ve got to prepare strategically. Below are seven things about the Series 7, or the General Securities Representative Exam, that you may not be aware of, courtesy of Brian Marks, managing director at Knopman Financial Training, a New York-based FINRA licensing exam preparation firm.
Keep them in mind as you put in all the work and before you walk in that building.
Many candidates believe that the best way to prepare for the exam is by completing as many questions as possible. However, they do not spend enough time reviewing the items they get wrong or those they do not fully comprehend. Just because you get a question right, does not mean you fully grasp the concept. Instead, every question should be used as an opportunity to dive deeper into the topic to ensure that the concept is fully understood. Not only should candidates know why the right answer is correct, but also why the other three answer choices are incorrect. Going back into the textbook after each question is a great way to add additional value.
Many registered reps advise only completing tons of practice questions and not reading the book. In fact, a large percentage of candidates who pursue this strategy do not pass. Do all the work and you will increase your chance of passing the exam on the first try.
Over the past few years, suitability, meaning the appropriateness of recommendations, has taken center stage on the exam. Expect to receive many scenario-based questions asking what might be the most appropriate investment strategy for a customer given their financial and non-financial needs. To do well with these types of questions, it is important to have a strong understanding of the different types of securities products as well as the benefits and risks associated with each. Also, keep in mind that the answer choices to these questions will not always 100% align with the test-takers personal viewpoint, but that it is all about picking the best answer of the options provided.
The big two on the exam, according to most reps who have taken the exam, are municipal bonds and options. But these topics only account for about 25% of the exam and that percentage has declined in recent years. Don’t forget about topics such as investment companies, retirement plans, annuities and direct participation programs. Each of these topics could likely account for 10-15 questions.
The exam is approximately 30% math (e.g. options, margin and convertible bonds). Some candidates feel strong in the math and will plan to score well there, allowing for a slightly weaker performance on the regulations. Other candidates “fear” the math – that’s okay too. Candidates who are stronger on the qualitative concepts and regulations and count on many of those questions on the exam.
When going into the exam, the testing center will provide you with a basic 4-function calculator, an erasable marker and an erasable note pad. You cannot bring any of your own materials to the exam. If you want to simulate test conditions, go to an office supply store and purchase these items. This will help make you more comfortable on exam day.
The FINRA Content Outline specifically notes that candidates are responsible for staying abreast of all rule changes. So, if a new rule goes into effect just prior to your exam, that topic is fair game. Be sure to follow-up with your training provider prior to the exam for any recent rules changes.