Securities Industry Essentials Exam For Dummies with Online Practice Tests E-Book

Steven M. Rice

• Herausgeber: John Wiley & Sons
• Kategorie: Bildung
• Sprache: Englisch

Seitenzahl: 730

Veröffentlichungsjahr: 2020

Beschreibung

SLAY the SIE--and score that top job! That securities job of your dream looks pretty sweet, but one little thing stands in your way: the Securities Industry Essentials (SIE) exam. The high fail rate for first- and second-time test-takers can be intimidating, but you can avoid it! Pass the exam and get straight to work on the series level top-off exams--and your career. All you need is this handy guide and the practice that comes with it! Securities Industry Essentials Exam For Dummies has you covered in every conceivable way so you can knock out the SIE with no trouble at all--the first time. This book takes you from basic security investments to options and customer care and includes chapter quizzes, in-text and online practice tests, and advice on starting out in the industry. * Take 4 full-length practice tests in the book and online * Prep yourself to the max * Avoid common exam pitfalls * Kickstart your career In this field, results are what it's all about, starting now. Passing with a high score vastly increases your chances of getting to the top. Why leave it to chance? Score this book now and score big in the future!

Leseprobe

Securities Industry Essentials® Exam For Dummies® 2nd Edition with Online Practice

Published by: John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774, www.wiley.com

Copyright © 2021 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2020946406

ISBN 978-1-119-73651-6 (pbk); ISBN 978-1-119-73654-7 (ebk); ISBN 978-1-119-73655-4 (ebk)

Securities Industry Essentials® Exam For Dummies® with Online Practice

To view this book's Cheat Sheet, simply go to www.dummies.com and search for “Securities Industry Essentials Exam For Dummies with Online Practice Cheat Sheet” in the Search box.

Table of Contents

Cover

Title Page

Copyright

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part 1: Getting Started with the SIE Exam

Chapter 1: Introducing the SIE (Securities Industry Essentials) Exam

What Is the SIE Exam, Anyway?

Profiling the SIE Exam-Taker

One’s Not Enough: Tackling the Co-Requisite Exams

Signing Up

Taking a Peek at the Tested Topics

Understanding the Exam Format and Other Exam Details

Chapter 2: Preparing for the SIE Exam

Courses and Training Materials: Determining the Best Way to Study

Managing Your Study Time Wisely

Exploring Study Strategies

Developing Solid Test-Taking Skills

Knowing When You’re Ready

Chapter 3: Examining and Mastering Question Types

Familiarizing Yourself with Question Formats

Shredding the Questions: Tips and Tricks

Chapter 4: Surviving Test Day

Composing Yourself the Day Before

Making the Most of the Morning

Arriving on the Scene

Tackling the SIE

Getting the Results: Drum Roll, Please …

Part 2: Mastering Basic Security Investments

Chapter 5: Underwriting Securities

Bringing New Issues to the Market

Getting Up to Speed on the Types of Securities Offerings

Reviewing Exemptions

Testing Your Knowledge

Answers and Explanations

Chapter 6: Corporate Ownership: Equity Securities

Beginning with the Basics: Common Stock

Getting Preferential Treatment: Preferred Stock

Securities with a Twist

Testing Your Knowledge

Answers and Explanations

Chapter 7: Debt Securities: Corporate and U.S. Government Loans

Tackling Bond Terms, Types, and Traits

Making Basic Bond Price and Yield Calculations

Determining the Best Investment: Comparing Bonds

Exploring U.S. Government Securities

Playing It Safe: Short-Term Loans or Money Market Instruments

Testing Your Knowledge

Answers and Explanations

Chapter 8: Municipal Bonds: Local Government Securities

General Obligation Bonds: Backing Bonds with Taxes

Dealing with Revenue Bonds: Raising Money for Utilities and Such

The Primary Market: Bringing New Municipal Bonds to Market

Examining Other Types of Municipal Bonds on the Test

Taxable Municipal Bonds

Don’t Forget Municipal Notes!

Municipal Fund Securities

Understanding the Taxes on Municipal Bonds

Following Municipal Bond Rules

Gathering Municipal Bond Info

“G” That’s a Whole Lot of Rules

Testing Your Knowledge

Answers and Explanations

Part 3: Delving Deeper: Security Investments with a Twist

Chapter 9: Delivering Diversification with Packaged Securities

Looking at Investment Company Registration

Diversifying through Management Investment Companies

Considering Other Investment Company Options

Adding Annuities to a Portfolio

Exploring Variable Life and Variable Universal Life Insurance

Testing Your Knowledge

Answers and Explanations

Chapter 10: Working with Direct Participation Programs and REITs

Searching for Identity: What DPPs Are (and Aren’t)

The DPP Characters: General and Limited Partners

Pushing through Partnership Paperwork

Passive Income and Losses: Looking at Taxes on Partnerships

Evaluating Direct Participation Programs

Checking Out Types of Partnerships

Reducing Real-Estate Risk with REITs

Testing Your Knowledge

Answers and Explanations

Chapter 11: Options: The Right to Buy or Sell at a Fixed Price

Brushing Up on Option Basics

Incorporating Standard Option Math

Gaining Additional Option Info

Testing Your Knowledge

Answers and Explanations

Part 4: Playing Nicely: Serving Your Customers and Following the Rules

Chapter 12: Serving Your Customers: Customer Accounts

Following Protocol When Opening Accounts

Getting Margin Paperwork Out of the Way

Introducing Long and Short Margin Accounts

Playing by the Federal Reserve Board’s Rules

Opening a Margin Account: The Initial Requirements

Obeying the Telephone Act of 1991

Testing Your Knowledge

Answers and Explanations

Chapter 13: Doing a Little Market Research: Securities Analysis

Knowing Your Securities and Markets: Securities Analysis

Following the Green: Money Supply

Reading Economic Indicators

How Economic Factors Affect Securities

Principal Economic Theories

Testing Your Knowledge

Answers and Explanations

Chapter 14: Going to Market: Orders and Trades

Shopping at Primary and Secondary Markets

Making the Trade

Understanding the Role of a Broker-Dealer

Receiving Orders from Customers

Looking at Market Participants

Testing Your Knowledge

Answers and Explanations

Chapter 15: Making Sure the IRS Gets Its Share

Everything in Its Place: Checking Out Tax and Income Categories

Noting Taxes on Investments

Exploring Retirement Plan Tax Advantages

Testing Your Knowledge

Answers and Explanations

Chapter 16: No Fooling Around: Rules and Regulations

The Market Watchdogs: Securities Regulatory Organizations

FINRA Registration and Reporting Requirements

Trading by the Book When the Account Is Open

Committing Other Important Rules to Memory

The Investor’s Bankruptcy Shield: FDIC and SIPC

Testing Your Knowledge

Answers and Explanations

Part 5: Putting Your Knowledge to Good Use: Practice Exams

Chapter 17: Bring It On: Practice Exam 1

Practice Exam Answer Sheet

Chapter 18: Answers & Explanations to Practice Exam 1

Making the Grade

Answer Key for Practice Exam 1

Chapter 19: Nothing But Net: Practice Exam 2

Practice Exam Part 2 Answer Sheet

Chapter 20: Answers & Explanations to Practice Exam 2

Knowing the Score

Answer Key for Practice Exam 2

Part 6: The Part of Tens

Chapter 21: Ten SIE Exam Traps to Avoid

Easing Up on the Studying

Assuming the Question’s Intent

Reading into the Question

Becoming Distracted When Others Finish

Not Dressing for Comfort

Forgetting to Breathe

Trying to Work Out Equations in Your Head Instead of Writing Them Down

Spending Too Much Time on One Question

Changing Your Answers for the Wrong Reasons

Calculating Your Final Score Prematurely

Chapter 22: Ten Ways to Start Your Career Off Right

Win at the Numbers Game

Be an Apprentice

Do Your Homework

Treat the Minnow like a Whale

Smile When You Dial

When a Security Falls, Don’t Be a Stranger

Put In the Hours

Broaden Your Horizons

Pay Yourself First

Set Some Goals: The Brass Ring

Index

About the Author

Advertisement Page

Connect with Dummies

End User License Agreement

List of Tables

Chapter 1

TABLE 1-1 Distribution of SIE Exam Questions

Chapter 5

TABLE 5-1 Types of Securities Offerings

Chapter 7

TABLE 7-1 Bond Credit Ratings (by Quality)

TABLE 7-2 U.S. Government Securities and Time until Maturity

Chapter 8

TABLE 8-1 Revenue Bond Covenants

Chapter 9

TABLE 9-1 Comparing Open-End and Closed-End Funds

TABLE 9-2 Breakpoints for ABC Growth Fund

Chapter 10

TABLE 10-1 Comparing General and Limited Partners

TABLE 10-2 Advantages and Risks of Various Oil and Gas DPPs

Chapter 11

TABLE 11-1 Maximum Gains and Losses for Call Options

TABLE 11-2 Maximum Gains and Losses for Put Options

Chapter 12

TABLE 12-1 Deposit Requirements for Long Margin Accounts

Chapter 13

TABLE 13-1 Effects of Easing and Tightening the Money Supply

Chapter 16

TABLE 16-1 Regular Way Settlement and Payment Dates

List of Illustrations

Chapter 13

FIGURE 13-1: Components of a balance sheet.

FIGURE 13-2: Components of an income statement.

FIGURE 13-3: The four phases of the business cycle.

Chapter 16

FIGURE 16-1: Buy and sell order tickets have spaces for the info you need to ma...

Guide

Cover

Title Page

Copyright

Table of Contents

Begin Reading

Index

About the Author

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Introduction

So you want to be a securities industry professional such as a stockbroker? The good news is that a career in the securities field can be extremely lucrative and rewarding. The not-so-good news is that anyone who plans to become a stockbroker and sell securities in any of the 50 states must first pass the Securities Industry Essentials (SIE) exam and one of the top-off exams. Even the SIE exam alone is quite a challenge for most people. To pass the SIE, you have to commit time and effort.

I passed all my securities exams the first time with very high scores, but they all required weeks of study and sacrifice. Those who aren’t totally prepared on exam day are in for an unpleasant wake-up call. I always had a few students in every class who had enrolled after they already failed one of their exams. Most of them initially expected the same easy ride that they’d experienced in high school or college. Not only were they wrong, but they also had to pay a significant amount of money to reregister for the exam and wait another 30 days (a mandatory FINRA rule) before they could retake the exam.

Back to the good news again. You’re obviously interested in doing well, so you probably won’t be one of those people. This book can help you pass the Securities Industry Essentials exam and achieve your goal.

About This Book

This book should be all you need to pass the exam, although I certainly encourage you to view other materials and take whatever exams you can get your hands on. But, as a word of caution, if you’re reviewing and taking tests from other books, please make sure they’re on target. I’ve seen more than a couple of books presenting information that is not included in the SIE outline.

I cover the topics that appear on the test, offer formulas as needed, provide definitions, and go over the foundational information you need to know. I also include lots of tips and a few memory tricks. But the real benefit of this book is finding out how to study and think through problems as well as you possibly can. That’s why I help you choose a study program, explain how to handle specific question types, warn you about common mistakes, connect concepts, and show you how to pull questions apart and get to the bottom of what’s being asked. You then get to apply this knowledge in two full-length practice tests so you get a taste of the SIE exam experience.

This is a reference book, and most sections are self-contained. In other words, you can read a section and understand it without looking over the text that comes before it. When some background information is helpful, I give cross-references to related topics. Therefore, you can pretty much jump in and out whenever you find topics you like (and when you find those you don’t). And like all good tour guides, I also point you to some other sites of interest — topics you can explore further on your own. If you’re short on time (as you probably are) and aren’t ready for a break just yet, you can skip the sidebars, those little gray boxes that contain interesting but nonessential information.

Foolish Assumptions

While writing this book, I made a few assumptions about you and why you picked up this book. For starters, I assume that you’re looking for a no-nonsense study guide to supplement your textbook or prep course — one that provides a ton of example questions and some sample exams. Look no further! Whether you’re preparing to take the test for the first time, retaking the test after a less-than-stellar performance, or looking for a refresher before you recertify, this is the book for you!

Icons Used in This Book

To make this book easier to read and use, I include some icons to help you find and fathom key ideas and information.

This icon highlights example SIE test questions (which I follow with helpful answer explanations).

This icon is attached to shortcuts and insider advice for studying for and passing the SIE exam.

This icon points to information that’s especially important to remember in order to do well on the test.

This icon warns you away from actions that can harm your work and drop your score.

Beyond the Book

In addition to the material in this book you’re reading right now, this product also comes with access to some really useful online material. For additional tips and tricks, check out this book’s free Cheat Sheet by going to www.dummies.com and typing “Securities Industry Essentials Exam For Dummies with Online Practice cheat sheet” in the search box.

You also get access to an online database of practice exams. The two exams in this book are online, and you can also take four additional exams for even more practice.

To gain access to the four online exams, all you have to do is register. Just follow these simple steps:

Register your book or ebook at Dummies.com to get your PIN. Go to

www.dummies.com/go/getaccess

.

Select your product from the dropdown list on that page.

Follow the prompts to validate your product, and then check your email for a confirmation message that includes your PIN and instructions for logging in.

If you do not receive this email within two hours, please check your spam folder before contacting us through our Technical Support website at http://support.wiley.com or by phone at 877-762-2974.

Now you’re ready to go! You can come back to the practice material as often as you want — simply log on with the username and password you created during your initial login. No need to enter the access code a second time.

Your registration is good for one year from the day you activate your PIN.

Where to Go from Here

Although you can read this book from start to finish, you can certainly work your way through it in more creative ways. Where you start is up to you, though please, please don’t start with the practice final exams! Give yourself a good grounding in the content here, and then use the practice final exams to evaluate your understanding and show you where to focus your studies. You can flip to the topics you think you understand fairly well to boost your confidence or skip directly to whatever’s giving you trouble — let the index and the table of contents be your guides. If you have a good understanding of how to take the SIE exam, from how it’s structured to how to tackle questions, then you can go directly to the chapters in Parts 2 or 3, which address types of securities. If you’re feeling shaky on the legal aspects, check out the FINRA rules and regulations in Part 4. Everyone, however, can probably benefit from Part 1’s test-taking basics and info on study plans. Wherever you go, feel free to take detours to your textbooks, flash cards, FINRA websites, and any other resources for more information. Just remember to come back so you don’t miss anything here!

Part 1

Getting Started with the SIE Exam

IN THIS PART …

Review the computerized exam format and the procedures for registering to take the SIE exam.

Select the right study course and materials to prepare yourself for exam day.

Understand how to organize your study time efficiently and effectively — even when your time is limited.

Examine test-taking tips to maximize your chances of selecting the correct answer choices.

Discover what to expect on test day (because the only surprises that day should involve the triumphant return of your social life).

Chapter 1

Introducing the SIE (Securities Industry Essentials) Exam

IN THIS CHAPTER

Introducing the SIE

Taking a look at companion tests

Registering to take the exam

Uncovering topics tested on the SIE exam

Mastering the computerized exam format

Congratulations on your interest in becoming a financial professional! But before you can lose yourself in the energy of the office, the eager voices of your clients, and the warm glow of success, you have to face the SIE as well as one of the top-off (qualification) exams such as the Series 7. In this chapter, I give you an overview of the SIE exam, including its purpose, structure, format, scoring, and some helpful tips to guide you through the registration procedure.

What Is the SIE Exam, Anyway?

Initially, the information in the SIE (Securities Industry Essentials) exam was included in books that covered the Series 6, Series 7, Series 22, and so on. The Financial Industry Regulatory Authority’s (FINRA’s) idea was to strip the similar information from these exams and create the SIE exam. What I’ve found is that besides stripping the information from these other exams, unfortunately for you and other exam takers, FINRA added a lot more information. What this means is that you will have to study a lot of information to answer 75 randomized questions.

The SIE is an introductory-level exam designed to test your basic knowledge of the securities industry and is open to anyone age 18 or older. Fortunately, association with a securities firm is not required — individuals may take the SIE exam prior to or after being hired by a firm. You will need to know certain terminology used in the securities industry, different securities products, how the market is structured, how the market functions, different regulatory agencies and their purposes, as well as regulated and prohibited practices.

Since unsponsored individuals are allowed to take the exam, you can take a step toward becoming a securities professional prior to being hired.

The exam’s purpose is to protect the investing public by ensuring that the individuals who sell or give information about securities have mastered the skills and general knowledge that competent practicing representatives need to have.

The SIE exam itself is a computer-based exam given at Prometric (www.prometric.com/finra) test centers throughout the United States. The 75-question exam, administered by the FINRA, is 105 minutes in duration. A score of 70 percent or better gets candidates a passing grade and puts big smiles on their faces. After passing the SIE, the results remain valid for four years from the date you pass.

The sections later in this chapter explain the setup of the SIE Exam and give a rundown of how to register for the exam. If you have other questions, contact the FINRA Support Team at 240-386-4040 or visit www.finra.org/industry/qualification-exams.

Profiling the SIE Exam-Taker

The SIE exam is a co-requisite exam for people who want to become an investment company rep, a general securities rep, a direct participation programs (DPP) rep, a securities trader, an investment banking rep, a private securities offerings rep, a research analyst, or an operations professional.

The purpose of the SIE exam was to strip the information that was similar in all the aforementioned exams to make it easier for individuals to add additional licenses to their resume. So, in order to become a securities professional, you need to pass the SIE exam, one of the exams listed in the next section, and typically the North American Securities Administrators Association (NASAA) Series 63 or 66 exam.

People who have a long and sordid history of embezzlement, forgery, and fraud are generally disqualified and precluded from taking the exam. Candidates must disclose any prior criminal records, and the FINRA reviews each application on a case-by-case basis.

One’s Not Enough: Tackling the Co-Requisite Exams

The SIE exam is just your starting point. In order for you to become an industry professional, you will have to take one of the top-off exams and in most cases, the Series 63 or Series 66 state exams. As far as which top-off exam(s) you’ll have to take, that depends on the job you want and/or are hired to do. After you pass the SIE exam, the financial institution that hires you will tell you which exams you need to take and help you schedule them.

In addition to taking the SIE exam and one of the top-off or co-requisite exams listed in the following sections, you’ll likely have to take either the NASAA Series 63 exam or NASAA Series 66 exam. These exams go into state securities laws as compared to federal securities laws, which are focused on in exams like the SIE. The difference between the Series 63 and Series 66 is that the Series 66 allows holders to become investment advisers also. Your employer will let you know which one they want you to take. More and more broker-dealers want their agents to take the Series 66. Don’t worry too much; neither of them are the beasts that some of the other listed exams are.

Series 6: Investment Company and Variable Products Representative Exam

The Series 6 is the license required by most banks and insurance companies. This license allows the holder to sell products such as mutual funds, variable annuities, and variable life insurance (along with having an insurance license). To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_6_Content_Outline.pdf.

Series 7: General Securities Representative Exam

The Series 7 is the license exam that most people will be taking. This is the license required by most broker-dealers. The Series 7 allows you to sell equity securities, mutual funds, bonds, direct participation programs, options, and so on. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_7_Content_Outline.pdf.

Series 22: DPP Representative Exam

If you’re planning on focusing your career on selling direct participation programs (DPPs), the Series 22 is the one for you. This license allows you to solicit and sell limited partnership interest in DPPs like real estate programs, oil and gas programs, equipment leasing programs, and so on. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_22_Content_Outline.pdf.

Series 57: Securities Trader Exam

The Series 57 license allows holders to execute trades in securities. Typically a Series 57–licensed individual works in the trading department executing trades for persons or firms. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_57_Content_Outline.pdf.

Series 79: Investment Banking Representative Exam

The Series 79 Investment Banking Representative exam allows holders to work in the investment banking realm. As such, the holders’ functions may include advising or facilitating equity or debt securities offerings through public offerings, private placements, and mergers and acquisitions. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_79_Content_Outline.pdf.

Series 82: Private Securities Offerings Representative Exam

If you’re planning on selling securities privately as compared to publicly, the Series 82 is the exam you’ll need to pass. The Series 82 tests you on the knowledge needed to perform functions of a private securities offerings rep, including the solicitation and sale of Regulation D private placement securities as part of a primary offering. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_82_Content_Outline.pdf.

Series 7 + Series 86 + Series 87: Research Analyst Exam

If you love taking exams, this is the one for you. You not only have to pass the SIE exam but also the Series 7, Series 86, Series 87, and either the Series 63 or Series 66 — yikes! However, if you want to be a research analyst, this is the route you’ll need to go. A research analyst is required to prepare written and/or electronic communications that show an analysis of company securities and industry sectors. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_7_Content_Outline.pdf and www.finra.org/sites/default/files/Series_86-87_Content_Outline.pdf.

Series 99: Operations Professional Exam

Persons who have a Series 99 license have proved that they have the knowledge needed to perform the critical functions of an operations professional. As such, their functions include client on-boarding (welcoming new clients, addressing client concerns, making sure clients understand services available to them, and so on), receipt and delivery of securities and funds, account transfers, reinvestment and disbursement of funds, and so on. To see the complete outline of what is covered, go to www.finra.org/sites/default/files/Series_99_Content_Outline.pdf.

Signing Up

One of the things I really like about the SIE exam is that you don’t need to be sponsored in order to take the exam (most of the other securities exams require sponsorship by a brokerage firm, bank, insurance company, and so on). This allows you to get a leg up on the competition and also shows your future employer that you’re not fooling around.

Filling out an application to enroll

The easiest way to enroll to take the SIE is by going to www.finra.org/registration-exams-ce/qualification-exams/securities-industry-essentials-exam. Scroll down to the bottom of the page and look for “Enrollment Options.” Follow the instructions for individuals, which include creating an account plus enrolling for the SIE and paying for the exam (credit card or ACH).

It’s a date! Scheduling your exam

After you’ve completed the online application and received your enrollment notification, you can schedule an appointment to take the exam by contacting the Prometric testing center. Locate the test center nearest you by either calling the Prometric center (800-578-6273) during business hours or visiting www.prometric.com/FINRA to schedule to take the exam at a Prometric test center or online (remotely).

At the present time, online testing is relatively new. See the sidebar “So you want to take the test at your location” at the end of this chapter for information on taking the exam online.

Like other securities exam enrollment, your SIE exam enrollment is valid for 120 days — you have to take the exam within this time frame. When scheduling your exam appointment, be ready to provide the exam administrators with

Your name and Social Security number and/or FINRA number

The name of the securities exam you’re registering to take

Your desired test date

Getting an appointment usually takes about one to two weeks, depending on the time of year (you may wait longer in the summer than around Christmastime). Prometric will confirm your appointment on the phone or via email.

I suggest putting pressure on yourself and scheduling the exam a little sooner than you think you may be ready to take it; you can always move the test date back (there will be a charge if you cancel within ten business days of your test date). You know yourself best, but I think most students study better when they have a target test date.

You have a choice of locations to take the exam. If you’re a travelin’ man (or woman), you may want to schedule your exam at a location far away (maybe even in a different state) to get the test date that you want.

After you have your test date set, you may find that you’re ready sooner or will be ready later than your scheduled appointment. The exam-center administrators are usually pretty accommodating about changing appointments and/or locations as long as you call before noon at least two business days before your test date, but there may be a fee involved.

You can get an extension from the 120-day enrollment only if you call within ten days of your enrollment expiration and if no earlier test dates are available.

Planning ahead for special accommodations

If you require special accommodations when taking your securities exam, you can’t schedule your exam online. You have to contact the FINRA Special Conditions Team at 800-999-6647 or fill out the special-accommodations form at www.finra.org/sites/default/files/SA-Eligibility-Questionairre.pdf. Read on for info on what the test administrators can do if you have a disability or if English isn’t your first language.

Depending on your testing center, you may have to receive authorization to bring medical devices and supplies — such as insulin pumps, eyedrops, and inhalers — into the testing room. If you need authorization, call your local Prometric testing center, and a staff member will be able to guide you on the approval process.

Americans with Disabilities Act (ADA) candidates

If you’re disabled or learning impaired, the FINRA provides testing modifications and aids in compliance with the provisions of the Americans with Disabilities Act (ADA). To qualify for ADA provisions, your disabilities have to permanently limit a major life activity, such as learning, speech, hearing, or vision.

TEST CENTER AMENITIES

The test centers are required to comply with FINRA site guidelines; however, some of the older centers may not have the amenities that the newer ones do (such as lockers and earplugs). To protect yourself from a whole variety of unpleasant, unexpected site surprises on exam day, the FINRA website (www.finra.org) offers general information, including test center security guidelines (including candidate ID requirements, personal items allowed, and provided aids), test center rules of conduct, and so on. For more site-specific questions, like whether a cafeteria, vending machines, or lockers are on site, ask the center’s administrator when you schedule your test date.

This book was written several months into the Covid 19 pandemic. As of now, most closed testing centers have reopened at either full or limited capacity. Certainly, due to state and local government mandates, some testing sites may be more affected than others. The situation remains fluid and may change as the number of virus-infected individuals increases or decreases. I would suggest you check the following link for the latest Prometric updates: www.prometric.com/corona-virus-update. In addition, FINRA in combination with NASAA, have recently set up an online testing service (discussed at the end of the chapter). For the latest, go to www.finra.org/rules-guidance/key-topics/covid-19/exams.

To apply for special accommodations, you need to submit documentation from your physician or licensed healthcare professional to the FINRA, requesting the special arrangements. Additionally, you have to submit the FINRA Special Accommodations Eligibility Questionnaire and Special Accommodations Verification Request Form for all special arrangement requests (you can find links to the forms at www.finra.org/industry/special-accommodations).

You may request the accommodations you want approved; possible aids include

Extra time

A written exam (pencil and paper)

A reader, writer, or recorder

A sign language interpreter

A large-print exam booklet

Wheelchair-accessible locations

The FINRA reserves the right to make all final decisions about accommodations on a case-by-case basis.

English as a second language (ESL) candidates

If English is your second language, you can request additional time to take the exam when you schedule your SIE test date. If the FINRA approves, you receive a little extra time to complete the exam. In general, FINRA gives an extra 30 minutes for exams less than two hours and an extra hour for exams over two hours.

To qualify for extra time due to English being your second language (LEP — Limited English Proficiency), fill out the form at www.finra.org/sites/default/files/LEP-request-form.pdf.

Just in case: Cancelling as an option

If something comes up or if you feel you’re just not ready, you can cancel your appointment to take the SIE exam without penalty if you do so at least ten business days before the exam date. If a holiday falls within the cancellation period, you have to cancel an additional business day earlier. For example, if you’re scheduled to take the exam on a Wednesday, you have to cancel on Tuesday two weeks before your exam date. If a holiday falls between those dates, you have to cancel on Monday two weeks before your exam date. For more information, visit www.finra.org/industry/reschedule-or-cancel-your-appointment.

If you cancel after the proscribed deadline, if you don’t show up to take the exam, or if you show up too late to take the exam, you will be charged a cancellation fee equal to the cost of the exam fee paid. I’m sure the old “I forgot” excuse has been tried, but I’ve never heard of it being effective.

Taking a Peek at the Tested Topics

As a practical exam, the SIE requires you to master vocabulary, handle customer accounts, understand the rules and regulations that govern the securities industry, and yes, work with some math formulas (although very few). For ease of use (and because humans have a limited life span), this book focuses on the information needed to pass the SIE exam. Here’s an overview of what to expect:

The underwriting process (how new securities come to market) (

Chapter 5

)

Common and preferred stock (

Chapter 6

)

Corporate bonds and U.S. government securities (

Chapter 7

)

Securities issued by local governments (municipal bonds) (

Chapter 8

)

Investment companies (including mutual and closed-end funds) (

Chapter 9

)

Direct participation programs (limited partnerships) (

Chapter 10

)

Options (

Chapter 11

)

Customer accounts (

Chapter 12

)

Analyzing the benefits and risks associated with investments; making appropriate recommendations to customers (

Chapter 13

)

Following how new securities are brought to the market and how existing securities are traded in the market (

Chapter 14

)

Risk considerations and income-tax implications that stock market investors face (

Chapter 15

)

Rules and regulations governing the purchase and sale of securities and the registered representative’s responsibility for maintaining accurate record keeping (

Chapter 16

)

The FINRA has released a listing of the distribution of questions on the SIE exam. See Table 1-1 for the number of questions devoted to each topic as it applies to a registered rep’s performance.

TABLE 1-1 Distribution of SIE Exam Questions

Topic

Number of Questions

Percent of Exam

Knowledge of capital markets

12

16%

Understanding products and their risks

33

44%

Understanding trading, customer accounts, and prohibited activities

23

31%

Overview of regulatory framework

7

9%

Total

75

100%

Each of these topics falls under multiple areas of study. For example, to correctly answer questions that address the topic of handling customer accounts, you have to know enough about different types of stocks, bonds, and so on to be able to guide your customers, including which investments are more beneficial to retirees and which work better for investors who are just entering the workforce.

Although Table 1-1 shows the outline of the exam, I (and most other study material providers) break the chapters down by similar content to keep you from having to jump back and forth through your study material.

Understanding the Exam Format and Other Exam Details

To make sure you don’t walk into the testing center, take one look at the computer screen, go into shock, and start drooling on the keyboard, I use the next few sections to cover some of the testing details for the SIE exam.

Reviewing the exam basics

The SIE exam is a computerized, closed book (in other words, no book), one-hour and 45-minute exam. The exam consists of 85 multiple-choice questions (although only 75 of them count toward your score — see the next section).

You can take bathroom breaks at any time, but the clock continues to tick away, so you may want to reconsider drinking a mega-jumbo iced latte the morning before your test.

For information on the types of questions to expect, see Chapter 3. Flip to Chapter 4 for an overview of how your exam day may progress.

Practicing on ten additional trial questions

To ensure that new questions to be introduced in future exams meet acceptable standards prior to inclusion, you answer ten additional, unidentified questions that don’t count toward your score. In other words, you get 85 questions to answer, but only 75 are scored.

Note: If you see a question on the SIE that doesn’t seem even remotely similar to anything that you’ve studied (or even heard about), it may very likely be an experimental question.

Mastering the computerized format and features

Although you don’t need any previous computer experience to do well on the exam, you don’t want your first encounter with a computerized exam to be on the date of the SIE exam. Being familiar with the way the questions and answer choices appear on the screen is essential. FINRA has been nice enough to provide a tutorial for taking their qualification exams such as the SIE at the following link: www.finra.org/sites/default/files/external_apps/proctor_tutorial.swf.html.

A friendly exam-center employee will give you an introductory lesson to familiarize you with how to operate the computer before the exam session begins. Although the computer randomly selects the specific questions from each category, the operating system tracks the difficulty of each question and controls the selection criteria to ensure that your exam isn’t ridiculously easier or harder than anyone else’s.

The following list describes some important computer exam features:

Scroll bars for moving the questions on the screen

A time-remaining clock to help you track how much time you have left during each part (if the clock is driving you batty, you can hide it with a click of the mouse)

A confirmation box that requires you to approve your answer choice before the computer proceeds to the next question

An indication of which question you’re currently on

A choice of answering the questions by

Holding down the <CTRL> and <ALT> buttons and typing in the letter for the correct answer on the keyboard

Using the mouse to point and click on the correct answer

The capability of changing your answers or marking questions that you’re unsure of for later review, which allows you to go back and answer them at any time during that particular part. The “Mark for Review” button will appear at the bottom of the screen once you select an answer. There is also a “Previous” button that will allow you to go to the previous question if you want to change an answer.

Both “Calculator” and “Notepad” buttons are available on the top-left of the screen for you to use if necessary to help you answer the questions. Whatever you type in the notepad will be available the whole time you’re taking the test.

If during the test you forget how any of the test features work, you can always click on the “Help” button in the upper-left corner for instructions.

After you have completed the exam, you can click on the “Exit Exam” button in the upper-left corner. At that point, you can review questions or continue exiting the exam.

You can review your questions at any time during the test by clicking on the “Review Questions” button on the bottom of the screen. At that point, you are presented with a highlighted list of all of the questions that you’ve answered, and the ones marked for review have a green flag next to them. Just click on the number to review questions you want to see again. You can remove a “Marked for Review” flag by clicking the “Mark for Review” button again. Click on the “Return to Test” button at the top of the screen to get out of the review section.

Although you can review and change all your answers at the end of your test, I suggest that you refrain from making changes. Your brain is going to feel like it went through a blender by the time you finish the exam. Review only your marked questions and change the answers only if you’re 100-percent sure that you made a mistake. As an instructor, I know that people change a right answer to a wrong one five times more often than they change a wrong one to a right one.

Viewing exhibits

Some of the questions may require you to look at an exhibit such as an income statement, balance sheet, and so on to answer a question. Back when I took the exam, each candidate was given an exhibit book, and the question told you which exhibit you needed to look at in the book. Now, the exhibits are right on the screen next to the questions. And the questions tell you to refer to the exhibit to extract the information you need. If a question requires more than one exhibit, thumnails of the exhibits will appear on the right. Just click on each one of them to open them up.

Instant gratification: Receiving and evaluating your score

Remember having to wait weeks for a standardized test score, hovering somewhere between eagerness and dread? Those days are gone. At the end of the SIE exam, the system calculates your score and displays a grade result on the computer screen. Although the wait for your grade to pop up may feel like an eternity, it really takes only a few seconds to see your grade. When you sign out, the test center administrator will tackle you (well, approach you) and give you a printed exam report with your grade and the diagnostic score results with your performance in the specific topics tested on your exam.

Each question on the SIE exam is worth an average of 1⅓ points (some are worth more and some are worth less depending on the FINRA’s feeling of how difficult a question is), and candidates need a score of 70 or better to achieve a passing grade. This percentage translates to 53 questions out of 75 that you have to answer correctly. The scores are rounded down, so a grade of 69.33 is scored as 69 on the SIE. When I took the Series 7 exam, back when the passing grade was 70, one of the other students from my class got a 69.6 (which was rounded down to a 69), and he had the NASD (now called the FINRA) review his exam to try and get him the extra point. Needless to say, FINRA ruled against him and he had to take the exam again.

You passed! Now what?

After you pass the SIE, the FINRA will provide confirmation that you passed. At that point, you can now find a broker-dealer, bank, insurance company, or the like who wants you. Once you’re hired, your employer will let you know which other exams you have to take and schedule them accordingly.

Once you’ve passed your exams, you’ll need to fulfill the FINRA’s continuing education requirements. Within 120 days after your second anniversary, and every three years thereafter, you have to take a computer-based exam covering regulatory elements such as compliance, regulatory, ethical, and sales practice standards at the Prometric exam center. In addition, there is a requirement (called a brokerage firm element) that requires broker-dealers to keep their registered representatives updated on job and product-related topics.

TESTING INFO FROM THE FINRA

The FINRA website (www.finra.org) is certainly worth checking out. It contains all the nitty-gritty details about the SIE and related exams. Use this website for the following:

FINRA Current Uniform Registration Forms for Electronic Filing in WEB CRD: This page includes the registration forms and a link to the Uniform Forms Reference Guide, with contact numbers and other explanatory information for filers.FINRA Test Center Rules of Conduct: Just in case you’re unable to distinguish the test center from that third-period algebra class you had back in high school, the FINRA gives you the rules and regulations for taking the SIE (do not hide a list of equations under the brim of your baseball cap, do not roam the halls during your restroom break, and do not pass notes, no matter how bored you are).FINRA Registration and Exam Requirements: This section gives a comprehensive list of the categories of securities representatives and the exam requirements.FINRA Appointments and Enrollment: Here you find FINRA tips for scheduling appointments to take securities exams, info about obtaining extensions, and the exam cancellation policy.FINRA Registration Exam Fee Schedule: Check out this page to see the fees for registering for different securities exams.

So you need a do-over: Retaking the exam

Sorry to end this chapter on a negative note, but the SIE is a relatively difficult exam, and certainly some people need a do-over.

If you fail the SIE, you’ll have to request a new test date and pay to retake the test. You should reapply immediately, though you have to schedule the new test date for at least 30 days after the day you failed (that’s 30 days of prime studying time!). If you fail the exam three times, you’re required to wait six months before you can retake the exam.

Use the time between exams to understand what went wrong and fix it. Here are some of the reasons people fail their securities exams and some of the steps you can take to be successful:

Lack of preparation: You have to follow, and stick to, a well-constructed plan of study. You have your diagnostic printout after you take the exam, and you can use that to focus on the areas of study where you fell short.

Prep courses can help you identify and focus on the most commonly tested topics and provide valuable tips for mastering difficult math problems. Also consider tutoring sessions tailored to accommodate your busy schedule and pinpoint the areas of study where you need the most help.

Nerves won out: Some people are just very nervous test-takers, and they need to go through the process to get comfortable in unfamiliar situations. Next time around, they know what to expect and pass with flying colors.

The people who are the most nervous about taking the exam tend to be the ones who haven’t prepared properly. Make sure that you’re passing practice exams on a consistent basis with grades in at least the high 70s before you attempt to take the real exam.

Insufficient practice exams:

You need to take enough practice exams before you take the real test. I think getting used to the question formats and figuring out how to work through them is as important as learning the material to begin with.

Check out Chapter 2 for info on setting up a study schedule and making the most of your practice exams.

SO YOU WANT TO TAKE THE TEST AT YOUR LOCATION

Due to Covid-19 in 2020, many of the Proctor test center locations closed, which meant that candidates weren’t able to take their exams. FINRA and Proctor worked on setting it up so that you can take their exams at your location. Although just about all of the testing center locations have opened back up at either full or partial capacity, the online testing option is up and running. Obviously, there are some things you need (and need to know) prior to setting up to take the test at your location. I would suggest that you review the complete list here: www.prometric.com/sites/default/files/2020-04/PrometricProUserGuide_3.1_1.pdf

This site lists requirements for your computer (speakers, microphone, movable camera) and operating system. There are also downloading instructions and explanations of ID requirements, what a readiness agent is, and who will be watching you.

Chapter 2

Preparing for the SIE Exam

IN THIS CHAPTER

Investing in a prep course versus studying on your own

Finding time to study and using study strategies

Staying focused and building test-taking skills

Evaluating your readiness

When you’re preparing for the SIE exam, a good cup of java and an all-nighter just aren’t gonna cut it. Neither will a frantic two-week study session like the ones that used to work miracles when you were taking college finals. The SIE is not to be taken lightly, so you need to train for it both mentally and physically.

In this chapter, I discuss your options for studying to take the SIE exam. If you plan to enroll in an SIE exam prep course, I cover what to look for when selecting a course. I also help you organize your study time efficiently and effectively — even when your preparation time is limited.

Courses and Training Materials: Determining the Best Way to Study

When deciding how to go about studying for the SIE exam, your first mission is to identify the training mode that best suits your needs. If you’re likely to benefit from a structured environment, you may be better off in a classroom setting. A prep course can also give you emotional guidance and support from your instructors and others in your class who are forging through this stressful ordeal with you. On the other hand, if you’re the type of person who can initiate and follow a committed study schedule on your own every day, you may be able to pass the SIE exam without a prep course, and you can save the money you would have spent for classes. The following sections help you evaluate these options in more detail.

Back to school: Attending a prep course

People who learn best by listening to an instructor and interacting with other students benefit from attending prep courses. Unfortunately, not all SIE exam prep courses and training materials are created equally. Unlike high-school or college courses, the content of SIE prep courses and the qualifications of the instructors who teach them aren’t regulated by your state’s Department of Education, the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or any other government agency. Do some research to locate the SIE training course that works best for you.

The following sections explain some things to consider and questions to ask before enrolling. Take a look at the info you gather and trust your gut. Is the primary function of the prep course to train students to be successful on the SIE exam, as it should be? Or do you suspect it’s the brainchild of a broker-dealer who’s looking for extra revenue to supplement her failing stockbroker business? (Run away!)

Training school background

To find information about a program you’re considering, browse the training school’s website or contact the school’s offices. Find out how many years the training school has been in business and check with the Better Business Bureau or the Department of Consumer Affairs to see whether anyone has filed any complaints. Look for a school that has stayed in business at least five years. This staying power is generally a sign that the school is getting referral business from students who took the course and passed their securities exams such as the SIE, Series 7, Series 6, and so on.

Try to get recommendations from others who took the course. Word of mouth is an essential source of referrals for most businesses, and stockbroker training schools are no different. The stockbroker firm or financial institution you’re affiliated with (or will be affiliated with) should be able to recommend training schools.

Courses offered through a local high school’s continuing education program can be just as effective as those offered through an accredited university or a company that focuses solely on test prep, as long as the right instructors are teaching them. Read on.

Qualifications of the course instructor(s)

The instructor’s qualifications and teaching style are even more important than the history of the company running the course (see the preceding section). An instructor should be not only knowledgeable but also energetic and entertaining enough to keep you awake during the not-so-exciting (all right, boring) parts.

When looking for a course, find out whether the teacher has taken — and passed — various securities exams. If so, the instructor probably knows the kinds of questions you’ll be asked and can help you focus on the relevant exam material. The instructor is also likely to have developed good test-taking skills that she can share with her students.

Whether the instructor is a part-timer or full-timer may be important. For example, a full-time instructor who teaches 30 classes a year probably has a better grasp on the material than a part-time instructor who teaches 4 classes a year. By the same token, an instructor who owns the school that offers the course probably has greater interest in the success of the students than someone who’s paid to teach the class by the hour. Use your best judgment.

Before you register, ask whether you can monitor a securities class for an hour or so with the instructor who would be training you. If the company says no, I suggest finding another course because that course provider may have something to hide. While you’re at it, make sure the classroom is comfortable, clean, and conducive to learning.

Texts, course content, and extra help

To really benefit from a course, you need good resources — in terms of not only the actual training material but also the people in the classroom. These elements affect how the class shapes up and what you actually learn:

Training material:

Will you have a textbook to study from or just some handouts? The instructor should provide you with textbooks that include sample exams, and a prep course should be loaded with in-class questions for you to work on. The course should also provide you with chapter exams that you can work on at night before the next session (yes, homework is a good thing). Remember, the more questions you see and answer, the better.

In-class practice tests: