Exams and registrations mean revenue for the Financial Industry Regulatory Authority (FINRA), so it should be no particular surprise that there are quite a lot of them out there. Some, like the Series 7 and Series 63 are well-known, traditional exams that a large majority of people who work in the investment industry will have had to take at some point in their career. Some, like the Series 15, are pretty esoteric (Foreign Currency Options) and will only be relevant to a small subset of the investment professional community.

The Series 86/87 exams live in a middle ground between those extremes. As these exams are required for anybody wishing to work as a sell-side research analyst, they really are not esoteric. By the same token, relatively few people will have an opportunity to become a research analyst and need to take these exams.

What They Are For
The Series 86 and 87 exams are required by FINRA to work as a sell-side research analyst for a registered broker-dealer in the United States. While a cynic could certainly say that the creation of these exams is a byproduct of FINRA trying to grow its power base and revenue, the reality is that the embarrassments of the dot-com era highlighted serious deficiencies when it came to the practice of sell-side research and the handling of ethical conflicts. As such, the two exams essentially demonstrate that an analyst who has passed them has the basic professional competence to perform the job and an awareness of the rules and regulations that pertain to disclosure, conflicts of interest and ethical conduct.

Not all would-be analysts have to take the Series 86 exam. Those who have passed the Level 1 and Level 2 CFA exams or the Level 1 and Level 2 Chartered Market Technician exams can request an exemption from the Series 86 exam. In order to qualify, the candidate has to have passed those exams within the two years prior to the Series 86 or have worked continuously as an analyst since passing Level 2.

These Exams Are NOT for Everybody!
It's important to note that these exams are not intended for the general public. This test is only intended for those hired to work as research analysts (whether it's junior analyst, senior analyst, etc.,) and not for brokers, interns or those not currently employed.

As previously mentioned, you have to take the Series 7 before the Series 86/87 exams, and that requires a registered firm to sponsor you. It's also worth noting that the exams cost about $275, and that excludes the cost of fingerprinting, registration and so on. While it may be theoretically possible for an individual to go through all of those steps and sit for the Series 86/87 exams, there would be no point in doing so – a prospective employer would likely see such a person as disturbingly obsessed or out of touch with how the business works.

What to Expect
The Series 86 exam features 100 multiple-choice questions that must be answered in four hours. Ninety questions cover various topics pertaining to analysis, modeling and valuation, while 10 questions apply to information and data collection.

It takes a score of 73 to pass, and various study guide publishers estimate that the exam requires 40 to 45 hours of prep/study time. While that estimate may be accurate for would-be analysts with little finance/financial industry experience, those who've sat for the CFA exams or graduated from an MBA (or perhaps undergrad finance) program may find that estimate to be on the high side.

The Series 87 exam has 50 multiple-choice questions that cover NYSE/NASD rules, the Securities Act of 1933 and the Securities Exchange Act of 1934. The exam also covers the rules and regulations that pertain to the preparation of research reports and the dissemination of information within and outside the firm. It takes a 74 to pass and test-takers get 90 minutes. It takes an estimated 15 to 20 hours to prepare for the Series 87.

The Bottom Line
For the vast majority of would-be sell-side research analysts, the Series 86/87 exams will be little more than an irritating regulatory requirement as part of a broader onboarding process. Few of those who sit for these exams will learn anything new from the Series 86. In contrast, the information required for the Series 87 will be invaluable in staying clear of ethical or regulatory issues and/or staying on the good side of diligent compliance officers.

All told, the Series 86/87 exams were not established to be formidable gatekeepers to the sell-side research industry. Instead, they are designed to confirm that the would-be analyst has a minimal underpinning of analytical and financial knowledge and an awareness of the rules and regulations that govern the job. Though these tests are not particularly difficult or comprehensive, passing them is mandatory to work as a sell-side analyst and it is well worth putting in the effort to make sure that sitting for them is a one-time event.

Related Articles
  1. Professionals

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  2. Professionals

    What The Series 24 Exam Won't Teach You

    Can you handle being the judge and jury in your firm? Find out what surprising tasks a job as a principal entails.
  3. Options & Futures

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  4. Professionals

    The Series 79 Exam: What It Is And When You Need It

    If you're getting into the field of investment banking, you'll need to know all about the Series 79.
  5. Entrepreneurship

    The Series 3 Exam: Creating A Career With Commodities

    The Series 3 exam is the quickest way to diversify sales and add futures to your investing options.
  6. Professionals

    Common Interview Questions for Financial Analysts

    Learn more about the career of financial analyst, along with specific potential interview questions and answers for this type of position.
  7. Professionals

    Top 3 Misconceptions About Financial Analysts

    Learn misconceptions about financial analysts, such as they exclusively study the stock market, they are the same as financial advisors and they are all rich.
  8. Professionals

    Investment Analyst: Career Path and Qualifications

    Learn how to prepare for a career as an investment analyst, and read more about how many professionals in the field progress during their careers.
  9. Professionals

    Equity Investments: CFA Level II Tutorial

    Chapter 1: Equity Valuation: Its Applications and Processes Chapter 2: Return Concepts for Equity Valuation Chapter 3: Industry Analysis With Porter's 5 Forces
  10. Professionals

    Career Advice: Financial Analyst Vs. Financial Adviser

    Read an in-depth review of the differences between a career as a financial Adviser versus a career as a Financial Analyst, including how to decide which is best.
  1. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  2. What do hedge fund analysts do?

    A hedge fund analyst primarily provides support to a portfolio manager on how to best structure the hedge fund's investment ... Read Full Answer >>
  3. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  4. How stressful is the typical corporate finance job?

    In the financial industry, corporate finance jobs are often contrasted with investment banking jobs. The traditional view ... Read Full Answer >>
  5. What are the benefits of hiring a Chartered Financial Analyst (CFA) to be my financial ...

    A Chartered Financial Analyst (CFA) has successfully passed rigorous coursework in the fields of economics, financial analysis, ... Read Full Answer >>
  6. How do I become a Chartered Financial Analyst (CFA)?

    According to the CFA Institute, a person who holds a CFA charter is not a chartered financial analyst. The CFA Institute ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  4. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  5. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  6. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
Trading Center