A:

The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained by passing examinations before investment advisors can conduct business. Two of the most popular are the Series 6 and Series 7 multiple-choice exams. The Series 6 license allows a representative to sell only a limited set of investment products, whereas the Series 7 license allows a representative to sell a wider variety of securities.

The Series 6

The Series 6 exam (officially, the Investment Company and Variable Contracts Products Representative Qualification Examination) is 135 minutes long and carries a passing grade of 70%. Of the 100 scored exam questions, Function 1 deals with regulatory fundamentals and business development and is allocated 22 questions. Function 2 has 47 questions and focuses on evaluating customers' financial information, identifying investment objectives, providing information on investment products and making suitable recommendations. With 21 questions, Function 3 concentrates on opening, maintaining, closing and transferring accounts and retaining appropriate account records. Function 4 has 10 questions that center around obtaining, verifying, and confirming customer purchase and sale instructions.

Upon successful completion of the exam, representatives are qualified to solicit, purchase and sell certain security products including open-end mutual funds, variable annuities, variable life insurance, unit investment trusts and municipal fund securities – products commonly sold by financial planners. To conduct business in annuity or insurance products, a representative must also pass a state life insurance exam.

The Series 7

On the other hand, the Series 7 (General Securities Representative Qualification Examination) is broken into two three-hour segments and contains 260 questions, 250 count towards the final score. The passing grade for the Series 7 exam is 72%.

The Series 7 license enables financial advisors to engage in buying and selling virtually all securities-related investment products: common and preferred stock, stock options, and government and corporate bonds. This is the license required for stockbrokers.

The Bottom Line

A self-regulatory organization or a FINRA-member firm (such as a brokerage) must sponsor a candidate who wants to take these exams. In order to schedule an exam, the sponsoring firm files the Uniform Application for Securities Industry Registration or Form U-4 with FINRA, acting as Appropriate Signatory. Applications without sponsorship are rejected.

However, beginning in October 2018, un-sponsored individuals will be able to take the new Securities Industry Essentials Exam (SIE), which includes questions common to the Series 6 and Series 7. They will only need sponsorship to take additional "top-off" exams.

Upon passing the exams and registering with FINRA through the sponsoring firm, the candidate is granted a license and becomes a registered representative.

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