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An Introduction to FINRA Exams

An Introduction to FINRA Exams

The Financial Industry Regulatory Authority (FINRA) is a non-governmental organization charged with enforcing the many rules and regulations that control the financial industry in the United States. The organization, in accordance with federal and state laws, decides what brokerages, banks and other security dealers are allowed or required to do. FINRA also sets licensing requirements for the people who work at financial firms and administers qualification examinations. There are many different qualification examinations, but they all have a lot in common.  

FINRA Administered Qualification Exams

FINRA administers more than 40 different examinations on a broad variety of topics relating to financial regulations, but most financial professionals will only need to worry about a small handful of the tests. For example, the Series 52 examination qualifies a person to be a municipal securities representative, so only people who work in municipal securities are required to take it. Every job in the financial industry has its own licensing requirements, but most early-career professionals will likely need to take the Series 6 (investment company representatives), Series 7 (securities representatives), Series 63 (state securities laws), Series 65 (investment advisers), or Series 79 (investment banking) exams.  

How the Tests Work

All of FINRA’s qualification exams use a timed, multiple-choice format. The Series 7 test for General Securities Representatives is the longest of the exams at 250 questions, but most of the others use around 100 questions. All of the tests can be taken on a computer, usually at testing services companies. On most of the tests, a passing grade requires answering at least 72% of the questions correctly. It’s possible to take most of the exams several times, but candidates must wait 30 days between attempts.  

Key Topics

Although each of the many FINRA qualification exams is different, the same subjects pop up in almost all of them. In general, candidates studying for any of the FINRA exams will need to study three different areas: basic knowledge about financial markets, rules and regulations, and job functions.  

Economics and Finance

Virtually all financial industry professionals need to cultivate a deep understanding of basic economics and the workings of securities markets. This includes basic concepts like business cycles, inflation and deflation, interest rates, and how to read a financial report. Candidates also need to learn securities vocabulary like the different types of stocks, bonds, and other investment vehicles. Most of these topics are covered in basic economics and finance courses at universities.  

Rules and Regulations

Financial regulations are complicated, and financial professionals have to understand them to serve their clients and avoid unwelcome attention from Department of Justice. Some of the regulations, like prohibitions against insider trading or market manipulation, are obvious and intuitive. Other rules can seem byzantine and ridiculous. All the same, candidates have to understand precise rules for how financial professionals can earn money, what products they’re allowed to sell and to whom they can sell them, and a host of other issues. Candidates typically study these concepts using FINRA test prep materials.  

Job Functions

Exam questions about job functions typically focus on record-keeping requirements and interaction with clients. Client interactions can be very tricky because investment professionals must be careful to avoid misleading their customers or the market. They also have to know enough about the market to give good financial advice. The Series 7 exam, for instance, asks a series of questions about the ideal investment vehicles for clients in various situations. The government closely watches the financial sector, so financial professionals have to keep meticulous records of all their behavior. Every order, every sale, and every new account must be documented precisely and accurately. Penalties against firms for poor recordkeeping can be severe, so this section of the exam is extremely important for future employees of financial institutions. In total, the FINRA exams are time-consuming but not difficult. The only sure route to a high grade is tedious memorization of rules and regulations. The exams don't try to trick test-takers, but rather force them to truly grasp the important concepts. Best of luck in your preparation!