Series 86/87 Exams

What Are the 86/87 Series Exams?

The Series 86/87 exams are tests that determine the competency of financial research analysts at the entry-level. Both exams are administered and required by the Financial Industry Regulatory Authority (FINRA) before professionals can receive the research analyst designation. Once obtained, individuals can produce in-depth reports that investors use when they make their investment decisions.

Candidates must also pass the Securities Industry Essentials (SIE) exam as well in order to get the designation. Professionals who pass the exam can work as research analysts for broker-dealers.

Understanding the Series 86/87 Exams

Financial industry regulation ensures that investors and other market participants have access to a fair market. Professionals are bound by ethics and standards that ensure they have their clients' best interests in mind rather than the financial gain of their companies or themselves. That's why it's important for them to take the appropriate steps to become certified in their fields.

The Series 86/87 exams are requirements for professionals who want to become research analysts. They create timely reports on potential investment opportunities that are distributed to sales staff, institutional investors, and other broker/dealer clients. These reports are used by investors when they make their investment decisions. Those who pass the Series 86/87 are permitted to prepare written or electronic communications that analyze equity securities, companies, and industry sectors.

Also referred to as the Research Analyst exam, test takers must have a thorough knowledge of company and industry analysis methods, along with management study. Candidates must also understand the broad parameters of supply and demand for a given industry or sector. Candidates must understand financial metrics as well as earnings modeling methods and the industry dynamics that underly useful and accurate financial reports.

Special Considerations

The test is actually two exams in one:

• Series 86 (Part I): This exam consists of 100 multiple-choice questions and 10 pretest questions, testing an individual's knowledge of the field. Candidates have four-and-a-half hours to complete the Series 86. A score of 73% or better is required for passing.
• Series 87 section (Part II): This section tests regulatory administration and best practices for the profession. It contains 50 questions and five pretest questions, all focusing on rules and ethics. Candidates are given one hour and 45 minutes to complete the Series 87. A score of 74% or better is required to pass.

The analysis-focused Series 86 contains the following parts:

• Function 1: Information and Data Collection
• Function 2: Analysis, Modeling, and Valuation

 The regulatory and best-practices-focused Series 87 contains the following parts:

• Function 3: Preparation of Research Reports
• Function 4: Dissemination of Information

There are no points lost for guessing. But the exams are closed book, which means test takers cannot bring any reference materials.

Series 86/87 Prerequisites and Exemptions

As mentioned above, candidates must also pass the Securities Industry Essentials (SIE) exam in order to get their research analyst designation. This exam is taken by professionals who want to work in the securities industry. It tests their basic knowledge about securities, including product types, risk, regulation, and activities that are prohibited.

Those who have already passed both Level I and Level II of the Chartered Financial Analyst (CFA) Exam, or both Level I and Level II of the Chartered Market Technician (CMT) Certification Examination, may request an exemption from the Series 86 portion only. Candidates without a CFA must first pass one of the following prerequisite tests: Series 7, Series 17, Series 37, or Series 38.

Key Questions

According to FINRA's website, the following are key questions that candidates can expect on the exam:

1. What registration and qualification requirements must supervisors of registered research analysts possess?
2. Are sell-side equity analysts required to register as research analysts and pass the Series 86/87?
3. Does NASD 1050 apply to everyone who works in equity research or just those who write a research report that will be seen by the public?
4. Is a research analyst who is employed by a foreign broker/dealer affiliate of a FINRA member required to register pursuant to Rule 1050 if the member uses that analyst's research reports or distributes in the U.S. in accordance with SEC Rule 15a-6?