What is the Series 7 exam?

Tyler York
What is the Series 7 exam

Intro

The FINRA Series 7 General Securities Representative Exam, commonly referred to as the Series 7, is one of the most commonly taken licensing exams provided by FINRA, a self-regulatory agency tasked by the SEC to help keep finance professionals compliant with the law. Passing the Series 7 will grant you a FINRA Series 7 license with the ability to solicit, buy, or sell all types of securities (see Permitted Activities).

Below, we’ll give you a complete overview of the Series 7 exam, including key stats, difficulty, cost, tested topics, how to be sponsored to take the exam, and how to register for your test date. Once you’ve reviewed this, get a free trial of Achievable’s FINRA Series 7 prep course to see if our approachable style is the right fit for you.

The Series 7 Exam: Key stats

The Series 7 exam was created by FINRA to ‘assess the competency of entry-level General Securities Representatives.’ Here’s the key stats:

Time3 hours, 45 minutes
Format125 multiple choice questions, plus 10 unidentified experimental questions
Passing score72% (90/125)
Exam fee$300
Co-requisitePassed the FINRA Securities Industry Essentials (SIE) Exam

The Series 7 exam is also now referred to as the “Series 7 Top-Off” exam, as the exam must be passed in conjunction with the Securities Industry Essentials (SIE) Exam in order for the candidate to receive a full General Securities license from FINRA. You do not need to be sponsored to take the FINRA SIE exam, but must be sponsored by a FINRA member firm in order to take the Series 7 (more on that below).

How hard is the Series 7 exam?

The Series 7 exam is tough and you can’t wing it – you’ll need to memorize relevant rules and regulations, understand complex math that goes into options and other strategies, and be able to provide suitable (according to FINRA) investment recommendations for potential clients. The FINRA Series 7 Top-Off is harder than the old, pre-SIE version of the Series 7 Exam. In the words of one of our corporate clients, it is as if they split all of the easy questions into the FINRA SIE and the more difficult questions into the Series 7 Top-Off. The good news is that the new Series 7 Top-Off is shorter than it used to be.

There are things that make the exam difficult include: memorization of the rules and regulations you need to know, suitability (recommending the most suitable securities products to the customer), and complex math such as options hedging strategies. There is a lot of dry, legalese information to keep track of, which is why re-reviewing the material you’ve already learned is essential as you study. The math itself isn’t too difficult (no advanced math like Calculus), but applying it is tricky. Many of the calculations require dedicated practice to do correctly consistently even after understanding the relationships and rules.

You should expect to study for at least 50 hours in order to pass the exam, and many recommend you study for closer to 100 hours.

Series 7 pass rate

While the national Series 7 pass rate is not published by FINRA, it is widely accepted in the industry to be approximately 65%. Large corporations with dedicated programs typically have a higher pass rate of 75% – 85%, depending on the program.

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What topics are covered on the Series 7 exam?

Official FINRA Series 7 outline

The official FINRA outline for the Series 7 exam breaks the content into four sections:

TopicQuestions% of Test
Seeks Business for the Broker-Dealer from Customers and Potential Customers97%
Opens Accounts after Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives119%
Provides Customers with Information about Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records9173%
Obtains and Verifies Customers’ Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions1411%
Total125100%

Let’s go over each of the sections and their content:

Seeks Business for the Broker-Dealer from Customers and Potential Customers – 9 questions, 7% of the exam

This section covers the basics of customer-facing sales activities related to a general securities representative role. You will learn what you need to know and do when describing investment products and services to customers with the intent of obtaining their business. This includes the proper forms and formats of communication, the required approvals for communication, and what disclosures you must make when communicating with clients or potential clients. You will also need to know the regulatory requirements for various product types including Initial Public Offerings (IPOs), the process for bringing new products to market, the formal operating procedures of different types of securities, and various rules and regulations related to different security types. 

Opens Accounts after Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives – 11 questions, 9% of the exam

This section covers the rules and processes you must follow when opening a customer account and informing them of their options. You will need to know all about the different types of customer accounts, how to register them, what the requirements are for each type, how things like retirement plans or inheritances are handled, and how to obtain the approvals required to open a customer account. This section also tests you on the requirements to make reasonable efforts to obtain customer profile information and report anything suspicious or potentially against the law. 

Provides Customers with Information about Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records – 91 questions, 73% of the exam

Yes, you read that right – this is 73% of the Series 7 exam. This section of the exam covers how you must provide customers with information about their investment options, how you must help them select the best options for them (suitability), what the required disclosures are for each investment product type, and how you must communicate with customers about their account and retain documentation.

The heart of this section tests you on the concepts colloquially called ‘suitability’, which is the ability to determine the right investment product for a hypothetical customer based on their customer profile and what their stated goals are. It’s important to remember that they’re looking for the ‘suitable’ investment for a type of customer according to FINRA, so understanding their guidelines and what they expect you to answer here is key. This requires being fluent in the risks, benefits, and typical investors of major financial products, as well as FINRA’s expectations for the appropriateness of each product type for a given customer profile. The most commonly tested securities (financial products) are:

  • Equity securities (common and preferred stock)
  • Exchange traded funds
  • Exchange traded notes
  • Debt securities (bonds)
  • Options
  • Investment Companies (for example: mutual funds)
  • Direct Participation Programs
  • Hedge funds

An understanding of the benefits, risks, and the typical investors of financial products is required to master suitability and pass the Series 7 exam.

Obtains and Verifies Customers’ Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions – 14 questions, 11% of the exam

This is the logistics portion of the exam. This section covers how to provide current quotes for different types of securities, how to execute orders successfully and follow the law, and how to work with your supervisor to handle discrepancies, disputes, errors, and complaints. It also covers how to address margin issues. ‘Margin’ is where customers can receive loans from their financial institution or wealth management firm in order to buy securities or options on credit. This credit is often tied to the underlying value of the portfolio of that customer, and if the portfolio’s value changes, you may need to change the margin relationship with that customer in order to follow company guidelines and avoid exposing your firm to too much risk.

Achievable's FINRA SIE course
Achievable’s Series 7 content outline breaks the Series 7 into more manageable, organized chunks

Achievable’s Series 7 content outline

FINRA’s outline is comprehensive, but its categorization is not often suited for learning as many of the categories overlap. Below is Achievable’s content outline for our Series 7 prep course, which should give you a better idea of what you’ll need to learn to pass this exam.

1. Common stock

All things related to common stock, including share types, settlement, selling short, dividends, stock splits, fundamental, technical analysis, and suitability. Various equity-related investments like ADRs, rights, warrants, and tender offers are also discussed.

2. Preferred stock

Characteristics, features, and suitability of preferred stock. Features covered include callable, convertible, cumulative, and participating. Additionally, this chapter dives into interest rates, their influence in the financial markets, and how interest rate changes affect preferred stock.

3. Bond fundamentals

The foundations of debt securities, which are the most commonly traded investment in the financial markets. Topics covered include interest rates, bond characteristics, the debt markets, yields, and suitability.

4. Corporate debt

Why corporations borrow money, how they do it, and different types of debt securities they offer. Suitability, the bond markets, and bank products like CDs and banker’s acceptances are also part of this chapter.

5. Municipal debt

A deep dive into how municipalities (states, cities, and local governments) issue debt securities in order to fund budgets and municipal projects. The new issue process, the municipal markets, and investor suitability are also covered.

6. US government debt

The essentials of securities issued by the U.S. Treasury and federal agencies, including their suitability for investors. Mortgage backed securities like pass through certificates and collateralized mortgage obligations (CMOs) are also examined.

7. Investment companies

What an investment company is, how they operate, and the rules and regulations of the Investment Company Act of 1940. Mutual funds, closed-end funds, exchange traded funds (ETFs), and unit investment trust (UITs) are specifically discussed in detail.

8. Alternative pooled investments

Products that work similarly to investment companies but fall outside their definition, which includes real estate investment trusts (REITs), hedge funds, and direct participation programs (DPPs). DPPs are discussed in detail, specifically focusing on oil & gas and real estate limited partnerships (RELPs).

9. Options

A deep dive into option strategies, which include single leg, hedging, income, straddles, spreads, and non-equity options (index, foreign currency, yield, and VIX). Suitability, the options market, and applicable regulations are discussed as well.

10. Taxes

How taxes influence investment outcomes. Topics covered include cost basis, sales proceeds, accretion, amortization, and taxes on options.

11. The primary market

Focusing on the characteristics and regulations of the primary market. The rules of the Securities Act of 1933 are covered in detail, which include IPO rules, exemptions, and the registration process.

12. The secondary market

The essentials of the secondary market, which is governed by the Securities Exchange Act of 1934. Specific stock markets, participants in the financial markets, order types, and applicable regulations are all covered.

13. Brokerage accounts

How brokerage accounts work, the process of opening one, and the different types of accounts available. Cash accounts, margin accounts, fiduciary accounts, and rules relating to firms offering brokerage accounts are covered in detail. Advanced margin strategies and calculations are also discussed.

14. Retirement and education plans

The structures of ERISA-governed qualified and non-qualified retirement plans. Additionally, education plans (Coverdell ESPs and 529s) and ABLE accounts are covered. Contribution limits, penalties, and suitability for specific retirement and education plans are further discussed.

15. Rules and ethics

The do’s and don’ts of finance, specifically relating to registered representatives. Public communications and penalties for FINRA rule violations are also covered.

16. Suitability

High level review of suitability standards when making recommendations to clients. Product summaries, investment objectives, investor profiles, best practices when making recommendations, and test taking skills.

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Photo by Tima Miroshnichenko on Pexels.com

Who can take the Series 7 exam? (eligibility and sponsorship requirements)

The Series 7 exam has key eligibility requirements that you must meet in order to sit for the exam. Candidates cannot take the FINRA Series 7 Exam or other representative-level qualification exams unless they are associated with and sponsored by a FINRA member firm or other applicable self-regulatory organization (SRO) member firm. For more information on registration requirements, refer to FINRA Rule 1210.

The FINRA SIE Exam is a corequisite to the Series 7 exam. Candidates must pass both the Series 7 exam and the SIE exam to obtain the FINRA General Securities registration and Registered Representative title. You do not need to be sponsored in order to sit for the FINRA SIE exam, so you can take it before applying to finance industry jobs. If you haven’t taken the FINRA SIE exam yet, Achievable offers a great FINRA SIE Exam prep course with industry leading pass rates. 

How do I register for the Series 7 exam?

Registration can feel daunting – luckily, the FINRA firm that you are a member of should have a compliance team member help you through the process. Registered FINRA firms are members of FINRA’s Central Registration Depository (CRD) program, and must file an application on your behalf through the CRD portal using Form U4 (the Uniform Application for Securities Industry Regulation or Transfer Form). 

Once your firm has filed Form U4, this opens your enrollment window, which is a 120-day period where you’re allowed to sit for your Series 7 exam. Once your enrollment window has been opened, you or your sponsoring firm can schedule an exam date and time with a Prometric Testing Center. There is no online administration for the FINRA Series 7 exam at this time – you have to take it in a test center. We recommend that you plan your exam date far in advance, so that you can pick an optimal time for your schedule and also ensure that you do not miss the opportunity to test during your designated enrollment period. 

For complete details, please visit FINRA’s Registering a New Candidate page.

How much is the Series 7 exam cost?

The exam fee for the Series 7 exam is $300. These fees are assessed with the form filings submitted through the CRD, so the firm is the one that needs to make the payment on your behalf. While it depends, many firms will cover this exam fee for you or reimburse you once you pass the exam. 

Test prep programs for the Series 7 exam vary in cost depending on the type of program and the vendor you work with. Most self-service online programs range from $149 to $299 (Achievable’s excellent FINRA Series 7 prep course costs just $149), while live classes, live online classes, intensive bootcamps, and tutoring can all cost hundreds of dollars more. Given the complexity of this exam, it is strongly recommended that you use prep materials in some form when preparing for the Series 7, and you should factor that cost into your plans. Many firms will provide a list of recommended vendors or give you prep materials or classes outright, but some will require you to purchase them out of pocket and either reimburse you after you pass or not reimburse you at all.

How to take the Series 7 exam

The Series 7 exam is a computer test administered by Prometric Test Centers nationwide. You cannot sit for the exam online or take it in another testing location. Your test center will give you a tutorial on how to take the exam prior to taking it.

Candidates are given 3 hours and 45 minutes to complete the Series 7 exam. There are no sections or breaks during the testing period – it is all one big test.

Candidates are not permitted to bring reference materials to their testing session. Severe penalties are imposed on candidates who cheat or attempt to cheat on FINRA-administered exams.

How is the Series 7 scored?

The Series 7 exam is scored right or wrong on each of its 125 multiple choice questions. Each question has four answer choices. Each candidate’s exam includes 10 additional, unidentified pretest items that do not contribute toward the candidate’s score. The pretest items are randomly distributed throughout the exam. Therefore, each candidate’s exam consists of a total of 135 items (125 scored and 10 unscored), and you do not know which of the questions are experimental. Therefore, it is recommended that you answer all of the questions and do not attempt to determine which questions are experimental. 

Additionally, there is no penalty for guessing, so candidates should make sure to answer every question by the end of the test period, even if they do not know the answer.

All candidate test scores are placed on a common scale using a statistical adjustment process known as equating. Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different sets of exam items that candidates receive. This allows for a fair comparison of scores and ensures that every candidate is held to the same passing standard regardless of which set of exam items they received.

Achievable has an easy-to-understand Series 7 course that uses technology to ensure you pass

How to study for the Series 7 exam?

Passing your Series 7 exam is a serious endeavor, and it will not come easily without you putting in the work. You should plan to study for at least 50 hours over the course of a month, and many recommend you study as much as 100 hours over multiple months. For more recommendations on how to prepare for the exam, check out our Series 7 Study Guide.

While some firms will offer you the ability to take live classes or a structured program, the majority of firms ask you to prepare on your own. For that, you should use a trusted self-service online program as the cornerstone of your studies – online programs offer far more convenience and functionality than books, and expensive options like tutoring and bootcamps are best utilized once you already have a foundational understanding of the material. You should choose a prep program that fits your schedule and learning style to give you the best chance for success. 

A proven online program like Achievable’s Series 7 exam prep course is an excellent option for your studies:

  • Industry leading pass rates: Our pass rates for our Series 7 customers are far above the national average and above the published averages of other vendors.
  • Easy to understand: We have written our content in an easy-to-understand way that uses real world examples to help make the complex math and legalese of the FINRA Series 7 exam approachable to anyone. 
  • Optimizes your memory: Our advanced learning algorithm continually optimizes your review schedule to maximize your memory retention and exam readiness over time, focusing on improving your weak areas and giving you certainty that you’re ready to pass the test. 
  • Tons of practice exams: Our Series 7 program contains 25+ unique practice exams, ensuring that you have all the material you need to be completely prepared on test day.
  • Study anywhere: Our program is accessible on any device, so you can study on your commute, at the gym, or on lunch break – wherever is convenient for you.
  • We offer an industry-leading Pass Guarantee to all customers. 

It’s no wonder that reps of all ages and backgrounds love our Series 7 course.

Achievable Series 7 - $149
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