The Series 7 is a series of examinations used by investment firms to determine an individual’s qualifications to perform securities transactions on behalf of a brokerage company. It is a prerequisite for those individuals who hope to become a general securities representative or a registered representative.
To receive the license to sell securities, an individual must be sponsored by a registered broker-dealer. To qualify for sponsorship, two exams are required: The Series 63 exam and the Series 66 exam. After passing these exams, the Series 7 examination is next up. It is not necessary to pass all three before submitting applications at multiple firms.
Read more as we’ll tackle the breakdown of the revised Series 7 exam in today’s article.
How Many Times The Series 7 Exam Was Revised
Series7 has been revised four times. 1983, 1991, 2008, and again in 2011.
Each time it has been redone, the Series7 was adjusted to align with changes in technology and regulations. In 1983 the Series7 was originally implemented as a series of twelve tests over four days. Over the years, there have been many revisions to help “raise” the Series7 exam.
In 2008, FINRA made some significant changes to adapt to our ever-changing financial world. Here are a few of them:
- The Audit test was revised from 2 hours long to one hour long
- The definition of market-maker changed from an individual who holds himself out as willing to buy and sell a specific security at his quoted bid and ask prices during regular trading hours (as contrasted with an ODD-LOT DEALER who limits his activities to odd-lots during regular trading hours) to a member who is registered with FINRA as a market-maker under the Rule 4240 Series.
- The Securities Trader test was added, in addition to the Rules of Arbitration and Arbitrator Selection tests which were formerly in separate tests.
- The Registered Options Principal (ROP) certification was separated from the General Securities Sales Supervisor (GS).
The following year, 2009, regulatory changes caused by the Dodd-Frank Act forced more change on the Series7. The biggest change came when FINRA adopted Regulation SCI. In doing so it provided exam candidates with much needed information about their firm’s current technology and also eliminated a lot of “guess work” from the Series 7.
In 2011, FINRA made no changes to the Series7. However, throughout 2015 there have been several amendments to other levels of exams as well as rule changes that directly affect the Series 7 exam. In addition, there were two new topics added to the Securities Trader test and Market Maker test: Investment Banking Clients and Prime Brokerage Transactions. The rules regarding these subjects were not changed but simply added into those tests. It should be noted that those decisions are included in a package of regulatory updates called Reg SCI, which will automatically update itself on your computer so you’ll never have to worry about it again!
The New Series 7 Test Breakdown
The revised Series 7 exam is composed of six sections. Each section contains anywhere from six to eight task-based simulations, called “passages” in the exam. The tasks in each passage might be basic investment concepts or they might be more complex topics like analyzing an international company’s bonds or discussing how interest rates affect various securities.
Beginning with the May 2014 exam, the number of questions that test quantitative skills was reduced by nearly 18%, and the overall time for completing the exam was increased by two hours. That’s because many of the questions in the last section will now measure knowledge of general investment ideas rather than quantitative skills. The revised Series 7 will test knowledge of the securities markets at a high level, but no longer requires detailed quantitative skills.
Most of the questions are multiple choice. However, there are some passage-based tasks with four answer choices, where you must click on all of the correct answers to receive full credit.
Series 7 exam takers have three hours to complete the six sections of the test. You may bring up to one 3-ring binder (11 by 8 ½ inches), highlighters, and a simple calculator (not scientific) into the testing center. There is also no pre-testing allowed on any section except for Section II: Investment Analysis and Portfolio Management. Testing rules indicate that only a hand-held pencil may be used during this pre-test session. No notes or other materials are permitted in this session either; everything must be memorized beforehand.
The six sections are separated by short breaks. Each break lasts 10 minutes, but you are not allowed to leave the testing center during the break. You can use these 10 minutes to stretch your legs or use the restroom, but nothing more. The only way you will be dismissed from the test facility is if you become ill or need help with a disability issue. If any of this occurs before Section I is finished, you will have to return on another day for rescheduling purposes and may have additional costs.
Will The Revised Series 7 Be More Difficult
The revised Series 7 exam is structured differently. There are fewer quantitative questions, less time, and the number of questions is spread throughout the test. It is no longer specific to one type of question. The questions are not about how many pennies are in a jar or what is the result of adding two quarters? Instead, it’s about more generic topics like interest rates, stocks, bonds, IRAs, etc., which you have to answer with general knowledge.
The amount of time you have to complete each section depends on your test date. You can take a Series 7 exam in a paper-based or online format, but the amount of time is the same regardless. The entire testing day is three hours long; however, the actual number of minutes you spend taking each section varies depending on your test date and section. You must complete all sections within this three-hour period.
The Key Points To Remember Before Taking The New Series 7 Exam
The key points to remember on the new Series 7 exam are as follows:
There are 24 questions in each Section.
You have 90 minutes to complete this part of the exam.
Section I includes three pretest questions at the beginning of the section, which will not count toward your score but does affect how you will finish the test. If you answer all three correctly, then your allotted time for completing Sections II-VI will be increased by 30 minutes; if you answer any one or two incorrectly, then your allotted time will be decreased by 30 minutes; and if you answer none correctly, then your allotted time for Sections II-VI will be reduced to 60 minutes.
The quantitative skills are not as important as general knowledge.
At the end of this section, you will know how to calculate the net present value (NPV) and future value (FV). You will also be able to find YTM and determine whether a bond will be called or puttable.
You will know what margin is and how it can affect an account’s balance and be able to calculate it as well as recognize when margin must be obtained. Finally, you should understand all about options: calls, puts, how they are valued via the Black-Scholes Model, etc.
You will understand the differences between accounts and know which ones may be subject to different margin requirements. You should also be able to recognize how each can affect your portfolio as a whole as well as an individual account, such as the effect of options on an IRA, or what happens when you make a trade on margin.
This section includes information about the new topics you need to understand: risk assessment, valuation models for stocks, ETFs, mutual funds, etc., along with preferred stock and REITs. This is all in addition to knowing which securities are no-load versus load and closed-end versus open-end funds. Also included are general securities industry topics like blue sky laws and how FINRA operates within them.
Check out this Series 7 exam video course from ProfessionalExamTutoring.com if you want to make sure that you pass the exam on your first attempt.
Overall, the Series 7 is an important exam, but one that you can study for and pass well in advance of when you plan on taking it (if possible). It takes about 100 hours to study for both the Series 63 and the Series 66. If you are spending this much time studying, then your best bet might be to devote these same 100 hours to studying for the Series 7 as well because while it will benefit you, it will not earn you any money. Additionally, while most investment firms prefer that their employees have taken either the Series 65 or 66, they do accept other securities licenses holders. For example, if someone passed the CPA Exam with 3 years of experience working at a Big 4 Accounting Firm applying for work at an Investment Banking Firm, most companies would accept the Series 65 over the Series 66. In short, you can save yourself 100 hours of studying if you just pass the Series 7.