The Most Important Securities Licenses Issued by FINRA

FINRA

The Financial Industry Regulatory Authority (FINRA) is the self-regulatory agency for the securities industry, supervised by the SEC. The exams for the licenses required for an FA to practice, whether issued by FINRA or other industry regulatory authorities, are administered by FINRA.

The Most Recent FINRA License

As of 1 October 2018, anyone interested in sitting for almost all FINRA qualification licenses must first pass the Securities Industry Essentials® (SIE®) Exam. FINRA explains:

“The SIE will assess a candidate’s knowledge regarding fundamental securities-related topics, including knowledge of basic products, the structure, and function of the securities industry… and regulated and prohibited practices…”

“top off” exams such as Series 7 … have been restructured to reflect the consolidation of general knowledge questions into the SIE…Series 7 previously had 250 questions now has 125…” [1]

Series 7

To sell the broadest range of securities, an FA working for a broker/dealer must have a Series 7— General Securities Registered Representative. With a few exceptions, all other licenses orbit around the 7, which most FAs regard as the most difficult FINRA exam to pass.

You are immediately informed at the test site if you have passed but don’t receive your score. Conversely, candidates who fail receive their overall score and a breakdown by section. The financial press says the pass rate is approximately 60% to 65 %, so it isn’t easier than the old one. [2]

Series 6 Often Better Fit Than a Series 7

In many financial firms, such as smaller banks and credit unions, which only offer mutual funds, you might need only a Series 6 (IR) Investment Company and Variable Contracts Products Representative. [3]  (Mutual funds are legally known as Investment Companies). There are only 50 questions on the exam. You must also take the SIE exam and the Series 63 to obtain your Series 6. [4]

Series 6: Annuities, Variable Life, Mutual Funds

A Series 6 allows you to sell mutual funds, variable annuities, variable life insurance, and several other products, but not stocks or bonds. [5] Because ETFs (exchange-traded funds) are classified as stocks, you can’t sell them with only a series 6 license. Since you cannot sell ETFs, this regulation puts you at a disadvantage to those who can. The 850 ETFs now trading dominate the market, comprising 66% of trading volume. [6]

Pass Rate Low on Series 6

While not close to being as comprehensive as the Series 7 exam, the pass rate for the Series 6 is only 58%, the lowest pass rate of any FINRA licensing exam. Since the Series 7 exam is famous for being difficult, I believe most people don’t think the 6 could be nearly as difficult as the 7, so they don’t study as much as they need to.

Series 63: This is the Blue Sky license, or more formally, the Uniform Securities Agent State Law required by most states. This allows brokers to register the states where they plan to sell securities. While this license is issued by the North American Securities Administrators Association, it is administered by FINRA.

Series 3: This is not as well known as other licenses. If you deal in futures and commodities, the National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC) require you to pass the Series 3 exam. Remember, if you refer a client to a fellow broker specializing in futures, you will need this license to share commissions.

Our industry is constantly changing, and the licensing exams change to match the complexity of the industry, which often makes them more difficult.

Resources:

[1] https://www.finra.org/media-center/news-releases/2018/finra-launches-new-sie-exam

[2] https://www.investopedia.com/best-series-7-exam-prep-courses-5077599

[3] https://www.finra.org/registration-exams-ce/qualification-exams/securities-industry-essentials-exam

[4] https://www.investopedia.com/terms/s/series6.asp

[5] https://www.finra.org/registration-exams-ce/qualification-exams/series6

[6] https://www.tradersmagazine.com/departments/brokerage/cover-story-filling-the-void/

Contributing Writer: Subject Matter Expert Charles McCain

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