Series 7 Exam For Dummies, with Online Practice Tests E-Book

Steven M. Rice

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

Seitenzahl: 714

Veröffentlichungsjahr: 2016

Beschreibung

Take your Series 7 exam preparation to the next level Knowing exactly what to study for any exam is daunting. There's so much information out there, how can you possibly know what will be on the test? Series 7 Exam For Dummies, 3rd Edition with Online Practice Tests is a critical reference if you're prepping for your Series 7 examination. Packed with the latest information associated with this test, as well as proven test-taking strategies that are focused on maximizing your score, this easy-to-use and comprehensive text has been updated to support you in your test taking preparations. The Series 7 exam is no joke -- with 250 questions administered in two three-hour blocks, this test is certainly a challenge. Studying for your Series 7 can be intimidating, but with the proper preparation you'll be able to enter the exam room with confidence. * Put your knowledge to the test with two full-length practices tests and answers, which include full explanations to improve your understanding of the content * Access an additional full-length practice test and other study tools online * Leverage proven strategies and tips that will guide you in honing your test-taking skills * Build up the confidence you need to enter the exam with self-assurance and start your career as a licensed broker on the right foot Series 7 Exam For Dummies, 3rd Edition with Online Practice Tests is a fundamental resource that guides you through your preparations for the Series 7 exam.

Leseprobe

Series 7 Exam For Dummies®, 3rd Edition

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

Copyright © 2016 by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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Library of Congress Control Number: 2015943078

ISBN 978-1-119-10375-2 (pbk); ISBN 978-1-119-10376-9(ebk); ISBN 978-1-119-10405-6

Series 7 Exam For Dummies®

Visit http://www.dummies.com/cheatsheet/series7 to view this book's cheat sheet.

Table of Contents

Cover

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part I: Getting Started with the Series 7 Exam

Chapter 1: So You Want to Sell Securities: Introducing the Series 7 Exam

What Is the Series 7 Exam, Anyway?

Profiling the Series 7 Exam-Taker

One’s Not Enough: Tackling the Series 63 or Series 66

Securing Sponsorship and Signing Up

Taking a Peek at the Tested Topics

Understanding the Exam Format and Other Exam Details

Chapter 2: Preparing for the Series 7 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

Taking the Exam

Getting the Results: Drum Roll Please …

Part II: 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

For Further Review

Chapter 6: Corporate Ownership: Equity Securities

Beginning with the Basics: Common Stock

Getting Preferential Treatment: Preferred Stock

Securities with a Twist

For Further Review

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

For Further Review

Chapter 8: Municipal Bonds: Local Government Securities

General Obligation Bonds: Backing Bonds with Taxes

Dealing with Revenue Bonds: Raising Money for Utilities and Such

Examining Other Types of Municipal Bonds on the Test

Don’t Forget Municipal Notes!

Understanding the Taxes on Municipal Bonds

Following Municipal Bond Rules

Gathering Municipal Bond Info

For Further Review

Part III: Delving Deeper: Security Investments with a Twist

Chapter 9: Borrowing Money and Securities: The Long and Short of Margin Accounts

Getting the 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

Calculating Debit and Equity in Long Margin Accounts

Making Short Work of Calculations in Short Margin Accounts

Let the Good Times Roll: Handling Excess Equity

Looking at Limits When the Market Goes the Wrong Way

For Further Review

Chapter 10: Delivering Diversification with Packaged Securities

Diversifying through Management Investment Companies

Considering Other Investment Company Options

Reducing Real Estate Risk with REITs

Adding Annuities to a Portfolio

For Further Review

Chapter 11: Working with Direct Participation Programs

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

For Further Review

Chapter 12: Options: The Right to Buy or Sell at a Fixed Price

Brushing Up on Option Basics

Incorporating Standard Option Math

Mastering Complex Option Calculations

Nonconforming Options

Gaining Additional Option Info

For Further Review

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

Chapter 13: Doing a Little Market Research: Portfolio and Securities Analysis

Knowing Your Customer: Portfolio Analysis

Knowing Your Securities and Markets: Securities Analysis

Following the Green: Money Supply

For Further Review

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

Reading the Ticker Tape

Taking a Look inside the Designated Market Maker’s Book

For Further Review

Chapter 15: Making Sure the IRS Gets Its Share

Everything in Its Place: Checking Out Tax and Income Categories

Noting Taxes on Investments

Presenting Gift and Estate Tax Rules

Exploring Retirement Plan Tax Advantages

For Further Review

Chapter 16: No Fooling Around: Rules and Regulations

The Market Watchdogs: Securities Regulatory Organizations

Following Protocol when Opening Accounts

Trading by the Book When the Account Is Open

Committing Other Important Rules to Memory

The Investor’s Bankruptcy Shield: FDIC and SIPC

For Further Review

Part V: Putting Your Knowledge to Good Use: A Practice Exam

Chapter 17: Bring It On: Practice Exam Part I

Practice Exam Part I Answer Sheet

Chapter 18: Answers and Explanations to Practice Exam Part I

Making the Grade

Answer Key for Part I of the Practice Exam

Chapter 19: Nothing but Net: Practice Exam Part II

Practice Exam Part II Answer Sheet

Chapter 20: Answers and Explanations to Practice Exam Part II

Knowing the Score

Answer Key for Part II of the Practice Exam

Part VI: The Part of Tens

Chapter 21: Ten Series 7 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

Appendix: Memorizing Important Figures and Formulas

About the Author

Cheat Sheet

Advertisement Page

Connect with Dummies

End User License Agreement

Guide

Cover

Table of Contents

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Introduction

So you want to be 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 Series 7 exam, a monster of a test. And to accomplish this, you have to commit time and effort.

I passed the Series 7 exam the first time with a very high score, but it 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 get a few students in every class who’ve enrolled after they already failed the exam the first (or second) time they took it. 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 hundreds of dollars 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 Series 7 and achieve your goal.

About This Book

This book is not a comprehensive content review. That’s what textbooks are for. Rather, Series 7 Exam For Dummies is designed to be a supplement, a handy guide as you figure out how to think not only like a financial adviser but also like the test designers do (and no, I don’t mean to tap into your potential as an evil mastermind).

I cover the topics that always appear on the test, offer formulas, provide definitions, and go over the foundational information you need to know. I also include lots of tips and 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 a two-part full-length practice test so you get a taste of the Series 7 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.

I use the following conventions throughout the text to make things consistent and easy to understand:

When this book was printed, some web addresses may have needed to break across two lines of text. In those instances, you can rest assured that no extra characters (such as hyphens) have been added to indicate the break. Just type in exactly what you see in this book, pretending the break doesn’t exist. (If you’re reading this book in an electronic format, simply click the links to be whisked to the site in question. Doesn’t get much easier than that.)

New terms appear in

italics

and are closely followed by easy-to-understand definitions. Italics may also indicate emphasis.

Key words in bulleted and numbered lists are

bold

to highlight the most important info.

The use of gender-related pronouns alternates throughout the book (no preferential treatment is intended).

I’ve scattered sample questions throughout this book so you can test your understanding of new info and get a feel for Series 7 questions. And of course, for those sections that don’t include questions, remember that the practice tests that come with this book deal with all kinds of subjects.

I also use the language and lingo of FINRA. That means you see official names (like the Federal Reserve Board), nicknames (the Fed), and acronyms galore (like the FRB). That way, during the test, understanding the POPs, YTMs, TEYs, NAVs, EPSs, ADRs, LMVs, DRs, and so on shouldn’t be too much of a hassle.

You don’t have to read the index straight through or dally over the Library of Congress number and other publisher information, but most of the information here is important — the basic, need-to-know ideas. You can skim through the topics you know well and spend more time on those you don’t, but I do suggest looking everything over.

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 shaded 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 Series 7 test questions (which I follow with helpful answer explanations).

This icon is attached to shortcuts and insider advice on studying for and passing the Series 7 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

This book provides great information to help you prepare for the Series 7 Exam, but you can find more resources on Dummies.com:

You can download the book’s Cheat Sheet at

www.dummies.com/cheatsheet/series7

. It’s a handy resource to keep on your computer, tablet, or smartphone.

You can read interesting companion articles that supplement the book’s content at

www.dummies.com/extras/series7

. I even include an extra top-ten list.

This book comes with free online practice. In addition to the two Series 7 exams in this book, you can access a third exam online. You can practice with just a handful of questions, or you can choose to take an entire timed exam. To gain access to the three online exams, just follow these simple steps:

Find your PIN access code:

Print-book users:

If you purchased a print copy of this book, turn to the inside front cover of the book to find your access code.

E-book users:

If you purchased this book as an e-book, you can get your access code by registering your e-book at

www.dummies.com/go/getaccess

. Go to this website, find your book and click it, and answer the security questions to verify your purchase. You’ll receive an email with your access code.

Go to

Dummies.com

and click

Activate Now.

Find your product (

Series 7 Exam For Dummies

) and then follow the on-screen prompts to activate your PIN.

Now you’re ready to go! You can come back to the program 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.

For Technical Support, please visit http://wiley.custhelp.com or call Wiley at 1-800-762-2974 (U.S.), [phone] (international).

Where to Go from Here

Although you can read this book from start to finish, you can certainly work your way through in more creative ways. Where you start is up to you, though please, please don’t start with the tests! Give yourself a good grounding in the content here, and then use the tests 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 Series 7 exam, from how it’s structured to how to tackle questions, then you can go directly to the chapters in Parts II or III, which address types of securities. If you’re feeling shaky on the legal aspects, check out the FINRA rules and regulations in Part IV. Everyone, however, can probably benefit from Part I’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 I

Getting Started with the Series 7 Exam

Visit www.dummies.com for more great Dummies content online.

In this part …

Review the computerized exam format.

Understand the procedures for registering to take the exam.

Discover the topics tested on the Series 7.

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

Organize your study time efficiently and effectively.

Find out what to expect on test day.

Chapter 1

So You Want to Sell Securities: Introducing the Series 7 Exam

In This Chapter

Introducing the Series 7

Taking a look at companion tests

Getting a sponsor and registering to take the exam

Uncovering topics tested on the Series 7

Mastering the computerized exam format

Congratulations on your interest in becoming a stockbroker! 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 Series 7. In this chapter, I give you an overview of the Series 7 exam, including its purpose, structure, format, scoring, and some helpful tips to guide you through the registration procedure.

What Is the Series 7 Exam, Anyway?

The Series 7 exam qualifies you to hold the title General Securities Registered Representative (stockbroker), to sell many different types of securities, and to hopefully make stacks of money for your clients (and a bit for yourself). Individuals who earn their license by passing the Series 7 exam are qualified to solicit, purchase, and/or sell securities products, including

Corporate stocks and bonds

Municipal bonds

U.S. government bonds

Options

Direct participation programs (limited partnerships)

Investment-company securities

Variable contracts

The exam’s purpose is to protect the investing public by ensuring that the registered reps who sell securities have mastered the skills and general knowledge that competent practicing stockbrokers need to have.

The Series 7 itself is a computer-based exam given at Prometric and Pearson VUE (Virtual University Enterprises) test centers throughout the United States. The 250-question exam, administered by the Financial Industry Regulatory Authority (FINRA), is six long, arduous hours in duration. A score of 72 percent or better gets candidates a passing grade and puts big smiles on their faces.

The sections later in this chapter explain the setup of the Series 7 and give a rundown of how to register for the exam. If you have other questions, contact the FINRA Call Center at 301-590-6500 or visit www.finra.org/Industry/Compliance/Registration/QualificationsExams/RegisteredReps/Brochure/P009865.

Profiling the Series 7 Exam-Taker

The Series 7 exam is for people who want to

Enter the securities industry

Become registered representatives

Work for a securities broker-dealer

Although some less-prestigious exams (for example, the Series 6 and 62) can qualify you to sell some securities, most broker-dealers want their rising stars (that’s you) to have the Series 7 license. That way, you can work with almost the whole kit and caboodle — corporate stocks and bonds, municipal and U.S. government bonds, options, direct participation programs, investment companies, variable contracts, and so on.

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 FINRA reviews each application on a case-by-case basis.

One’s Not Enough: Tackling the Series 63 or Series 66

You don’t have to pass any prerequisite exams before you can take the Series 7; however, you do need to pass the Series 63 or Series 66 to be able to work in the securities industry because these exams and the Series 7 are corequisites in most states. You can take the Series 63 or 66 either before or after you take the Series 7, but most people start studying for the Series 63 or 66 and register to take it right after passing the Series 7.

Note: Even if you live in a state that doesn’t require either of these licenses, you still need to obtain one if you want to sell securities to someone who lives in a state that does require it. Just figure that your firm will require you to obtain the 63 or 66 to sell securities — your firm should tell you which one to take. The following sections explain what the two state-licensing exams cover.

Series 63: Uniform Securities Agent State Law Exam

The Series 63 is a 65-question test that the North American Securities Administrator Association (NASAA) developed, and it’s designed to qualify candidates as securities agents. The Series 63 exam covers state securities regulation rules as well as rules prohibiting unethical and dishonest business practices (not that you’d do anything like that). The Series 63 used to be the most common test taken along with the Series 7. Judging by class sizes, however, I would say that around twice as many Series 7 students are now taking the Series 66 as compared to the Series 63.

Series 66: Uniform Combined State Law Exam

The Series 66 is a 100-question NASAA exam that combines the Series 63 and the Series 65 (Uniform Investment Adviser). The Series 66 is designed to qualify candidates as both securities agents and investment adviser representatives (IARs). The Series 65 portion of the Series 66 allows you to collect a fee for just giving investment advice. This license was implemented several years ago, and it’ll most likely be required if you work for one of the bigger broker-dealers. More and more firms are requiring the Series 66 because it gives their registered reps an additional service to provide for their clients and an additional way for you (and your firm) to make money.

Securing Sponsorship and Signing Up

All candidates (that’s you) must have a sponsoring broker in order to register for the Series 7 exam. After passing the exam, your license will be in your own name; however, you have to be working for a firm in order for your license to be active. Generally, a firm hires you and then acts as your sponsor.

The following sections explain the basic exam requirements and help you navigate your way through the exam registration process.

Filling out an application to enroll

For you to obtain admission to the Series 7, your sponsoring firm has to file an application form (called a U-4 ) and pay the required processing fees with the Central Registration Depository (CRD). The U-4 is an annoying little form with about a gazillion pages that requires you to remember where you were ten years ago. You’re also required to submit your fingerprints, and you have to complete this step through an approved facility. Your firm will likely recommend the place they use — often the local police precinct. (Be advised that your sponsoring firm will probably frown upon your fingerprints if they’re attached to your mug shot.)

If you want to see a preview of the U-4 registration form that you’re responsible for filling out and that your firm has to submit, visit the FINRA website (www.finra.org) and search for U-4.

It’s a date! Scheduling your exam

After your firm files the application with the Central Registration Depository and receives your enrollment notification, you can schedule an appointment to take the exam by contacting the Prometric or Pearson VUE Testing Center. Locate the test center nearest you by calling either the Prometric center (800-578-6273) or the Pearson VUE center (866-396-6273) during business hours. Or you can visit www.pearsonvue.com/finra or www.prometric.com/FINRA/default.htm to schedule online.

Your Series 7 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

The name of your firm

A telephone contact to reach you and your employer

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 and Pearson VUE 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. 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.

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 Series 7 exam, you can’t schedule your exam online. You have to contact the FINRA Special Conditions Team at 800-999-6647. Read on for info on what the test administrators can do if you have a disability or if English isn’t your first language.

Asking about test center luxuries

Series 7 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.

Depending on your testing center, FINRA may have to authorize you to bring medical devices and supplies — such as insulin pumps, eyedrops, and inhalers — into the testing room. If you need authorization, call FINRA Field Support Services (FSS) at 800-999-6647 after scheduling the exam. For a list of personal items that may need approval, visit www.finra.org/Industry/Compliance/Registration/QualificationsExams/TestCentersAppointments/p010830.

Americans with Disabilities Act (ADA) candidates

If you’re disabled or learning impaired, 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.

To apply for special accommodations, you need to submit documentation from your physician or licensed healthcare professional to FINRA, along with a letter from your sponsoring firm 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 the professional form at http://www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/industry/p011125.pdf).

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

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 Series 7 test date. If FINRA approves, you receive an extra 30 minutes to complete each part (one hour total) of the Series 7 exam.

To qualify for this extra time, you have to provide the test center administrator with a letter from your firm, written in English on company letterhead, signed by your supervisor or manager, with your name and Social Security number. The letter should indicate that English is your second language. The supervisor’s original signature has to be on the letter; a photocopy without the original signature won’t be accepted.

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 Series 7 exam without penalty if you do so at least 10 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, you can visit www.finra.org/Industry/Compliance/Registration/QualificationsExams/RegisteredReps/Qualifications/P120071.

If you cancel after the prescribed deadline, if you don’t show up to take the exam, or if you show up too late to take the exam, FINRA will charge your firm a cancellation fee equal to the Series 7 exam fee paid by your firm. Don’t try the old “I forgot” excuse, because not only is it ineffective, but I’m somewhat sure that it’s illegal in all 50 states, Canada, and the U.S. territories.

Taking a Peek at the Tested Topics

As a practical exam, the Series 7 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. For ease of use (and because humans have a limited life span), this book focuses on the most commonly tested topics on the Series 7 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

)

Margin accounts (using money borrowed from broker-dealers to purchase securities) (

Chapter 9

)

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

Chapter 10

)

Direct participation programs (limited partnerships) (

Chapter 11

)

Options (

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 recordkeeping (

Chapter 16

)

FINRA has released a listing of the distribution of questions on the Series 7 exam. See Table 1-1 for the number of questions devoted to each activity that a registered rep performs.

Table 1-1 Distribution of Series 7 Exam Questions

Activity Performed by a Registered Rep

Number of Questions

Percent of Exam

Provides customers with information on investments and makes suitable recommendations

70

28%

Seeks business for the broker-dealer through customers and potential customers

68

27%

Obtains and verifies customers’ purchase and sales instructions, enters orders, and follows up

58

23%

Evaluates customers’ other security holdings, financial situation and needs, financial status, tax status, and investment objectives

27

11%

Opens accounts, transfers assets, and maintains appropriate account records

27

11%

Total

250

100%

Each of these activities 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.

To view the complete FINRA Series 7 outline, visit www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/industry/p124292.pdf.

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 Series 7 exam.

Reviewing the exam basics

The Series 7 exam is a computerized, closed book (in other words, no book), six-hour exam. The exam consists of 260 multiple-choice questions (although only 250 of them count toward your score — see the next section), and it’s divided into two three-hour sessions. You take a mandatory 30–60 minute break between sessions.

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 in the morning before you arrive at the exam center.

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 260 questions to answer (130 in each half), but only 250 are scored.

Note: If you see a question on the Series 7 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 Series 7. Being familiar with the way the questions and answer choices will appear on the screen is essential. Figure 1-1 can help you prepare for exam day.

2006 National Association of Securities Dealers, Inc. Reprinted with permission from NASD (now known as FINRA)

Figure 1-1: The PROCTOR computer system lets you select answers and mark them for review.

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 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

Typing in the letter for the correct answer on the keyboard

Using the mouse to point and click on the correct answer

At some test centers, using a computer with a touch screen that lets you select the answer by pressing lightly against the monitor with your fingertip

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

You can mark answers for review or change responses only for the part of the test you’re currently taking. In other words, after you begin the second part, you can’t go back and change answers from the first part.

Although you can review and change all your answers at the end of each half, don’t. Your brain is going to feel like it went through a blender by the time you get there. 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.

A little testing info from FINRA

The FINRA website (www.finra.org) is certainly worth checking out. It contains all the nitty-gritty details about the Series 7 and related exams. Use this website for the following:

FINRA Current Uniform Registration Forms for Electronic Filing In WEB CRD: This page includes the U-4 Series 7 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 Series 7 test center from that third-period algebra class you had back in high school, FINRA gives you the rules and regulations for taking the Series 7 (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 the Series 7 exam, 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 the Series 7 Exam.

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 Series 7, 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 30–45 seconds to see your grade. When you sign out, the test center administer 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 Series 7 exam is worth 0.4 point, and candidates need a score of 72 or better to achieve a passing grade. This percentage translates to 180 questions out of 250 that you have to answer correctly. The scores are rounded down, so a grade of 71.6 is scored as 71 on the Series 7. When I took the 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 FINRA) review his exam to try and get him the extra point. Needless to say, they ruled against him and he had to take the exam again.

You passed! Now what?

After you pass the Series 7, Series 63, and/or Series 66 exam, FINRA will send your firm confirmation that you passed. At that point, you can buy and sell securities for your customers in accordance with your firm’s customary procedures.

To continue working as a registered rep, you’ll need to fulfill FINRA’s continuing education requirements. Within 120 days after your second anniversary as a registered rep, 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 either the Pearson VUE or Prometric exam center. In addition, there is a requirement (called a brokerage firm element) which requires broker dealers to keep their registered representatives updated on job and product-related topics.

So you need a do-over: Retaking the exam

Sorry to end this chapter on a negative note, but the Series 7 is a difficult exam, and certainly a lot of people need a do-over.

If you fail the Series 7, your firm has to request a new test date and pay for you to retake the test. Your sponsors can send in one page of the U-4 requesting a new exam, or they can apply online through the Central Registration Depository (CRD) system. 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 the Series 7 exam 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.

Chapter 2

Preparing for the Series 7 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 Series 7 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 Series 7 is a mini-marathon of the test world, and as with all endurance events, you need to train for it both mentally and physically.

In this chapter, I discuss your options for studying to take the Series 7 exam. If you plan to enroll in a Series 7 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 Series 7 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 Series 7 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 Series 7 exam prep courses and training materials are created equally. Unlike high school or college courses, the content of Series 7 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 Series 7 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 Series 7 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 the Series 7.

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 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 — the Series 7 exam. 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 four 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 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:

You want a prep course that includes test sessions where the instructor grades your exams, identifies incorrect answers, and reviews the correct answers.

Instructor availability:

Ask whether the course instructors will be available to answer your questions after the class is over — not only at the end of the day but also during the weeks after you’ve completed the course and are preparing for the Series 7.

The practical details

The perfect course can’t do you any good if you never show up for class. Here are some issues to consider about the course offering:

Days and times:

Make sure the class fits your schedule. If getting there on time is too stressful or you can’t attend often enough to justify the expense, you won’t benefit from registering to take the course.

Class size:

If more than 30 to 35 people are in the class, the instructor may not be able to give you the individual attention you need.

Cost:

Obviously, cost is a major concern, but it definitely shouldn’t be your only consideration. Choosing a course because it’s the least expensive one you can find may be a costly mistake if the course doesn’t properly prepare you. You end up wasting your time and spending more money to retake the exam. You can expect to pay anywhere from $400 to $800 for a standard Series 7 prep course, including training materials (textbooks and final exams).

Quite a few people don’t pass the first time around, so find out whether the school charges a fee for retaking the prep course if you don’t pass the Series 7 exam or even if you feel that you’re not quite ready to take the test.

Selecting prep material to study on your own

If you’re the type of person who can follow a committed study schedule on your own every day, you may be able to pass the Series 7 exam without a prep course. Many different types of study aids are available to help you prepare.

No matter what your learning style is, I’m a firm believer in using a textbook as a primary training aid. You can use online courses, online testing programs, CDs, apps, and flash cards as supplements to your textbook, but give your textbook the starring role. By virtue of its portability and ease of use (you don’t have to turn it on, plug it in, or have access to the Internet, and it can never, ever run out of batteries), the textbook is simply the most efficient and effective choice.

Taking a course online

Remember that not all classes take place in brick-and-mortar buildings. For people who want to take a course but have scheduling constraints or lack a vehicle for commuting, instructor-led virtual classrooms may be an option. Students interact through online chats, email, message boards, and/or phone conferences. Classes may be scheduled at specific times, or you may work on your own time at your own pace. Before purchasing an online course, find out whether you can monitor one for an hour or so to see whether it meets your needs.

Note: Some so-called “online courses” may consist solely of a packet of study materials without any outside instruction. Make sure the course you sign up for has the features you want.

My personal favorites are the Empire Stockbroker Training Institute’s Series 7 Coursebook and its companion, Series 7 Final Exams (www.empirestockbroker.com). The textbook focuses on the relevant exam topics, is easy to read and understand, and includes plenty of practice questions and detailed explanations. Securities Training Corporation (www.stcusa.com) and Kaplan Financial (www.kaplanfinancial.com) also publish quality Series 7 books. A lot of the better Series 7 course textbooks are available online rather than in bookstores.

In addition to Series 7 Exam For Dummies, 3rd Edition, and a textbook, consider investing in one or more of the following popular study aids:

Online testing:

I’m all for online testing. Certainly, the more exams you take, the better. If the practice exam simulates the real test, it’s even more valuable. With this study aid, you have access 24 hours a day, 7 days a week, and can pace yourself to take the exams at your leisure. Select a program (for example,

www.empirestockbroker.com

always has the most current, updated simulated exams) with a couple thousand questions or more, along with answers and explanations.

CD-ROMs:

For the student who prefers interactive learning materials, CD-ROMs may offer everything from practice exams and tutorials to customizable study calendars. Computer programs vary, so shop around.

Audio CDs: