What is a FINRA License?

A FINRA license is necessary for any financial professional who wants to buy and trade stocks. Many different types of financial professionals obtain FINRA licenses, including stock brokers, financial advisors, insurance agents, retirement planners, and investment banking representatives. To obtain a FINRA license, applicants must first pass FINRA exams to demonstrate their knowledge of the securities industry and regulatory rules.

Because of the exams required to work as a broker or a financial adviser, financial professionals usually cannot plead ignorance when misconduct allegations end up in FINRA arbitration. FINRA registration and the required exams should ensure compliance with the Securities Exchange Act and protect investors from financial mismanagement and broker misconduct.

What is FINRA?

FINRA stands for “Financial Industry Regulatory Authority” and it is the regulator that oversees brokers and broker-dealers. It is a not-for-profit organization that is overseen by the Securities and Exchange Commission. FINRA maintains BrokerCheck.org, a public record of broker licenses, exams, and misconduct allegations.

How to Get a FINRA License

• The first step toward fulfilling FINRA license requirements is the Securities Industry Essentials (SIE) exam.
• Once a future broker passes the SIE, they should find a brokerage firm to sponsor their next qualifying exam, such as the Series 7.
• Test-takers can look up the FINRA exam schedule at their local test center and handle FINRA exam scheduling at their convenience.
• Once a broker has taken a Representative-level exam, they must submit a Form U4 to register. Registration must take place before engaging in securities business.

Exams are not easy and typically require 80 hours of study. Brokers should not attempt to circumvent the FINRA licensing process by cheating on an exam. If a broker is caught attempting to sneak information into the test or attempt to have someone else take the exam for them, that information could end up on their BrokerCheck record.

What is a FINRA License Number?

When FINRA accepts the broker registration they will provide the broker with a CRD number. The CRD number allows investors to look up brokers on BrokerCheck.org to verify their qualifications and registrations.

FINRA License Requirements

In order to get a FINRA license, brokers need to pass at least two exams and have a brokerage firm act as a sponsor. Brokers do not necessarily need higher education. Individuals can take any of the FINRA license exams without a college degree.

FINRA License Costs

There are various costs associated with a FINRA license.

• There is a fee to file a Form U4 in order to register and additional fees to make amendments.
• Each exam also requires a payment. The fee depends on the exam – they cost between $60 and $300.

What is a FINRA License Disclosure?

FINRA discloses several key pieces of information to investors. Visit BrokerCheck.org and look up your broker’s CRD number to find out if they have faced customer disputes, bankruptcies, criminal charges, or regulatory actions.

FINRA Registration Categories

There are four categories of FINRA registration:

1. Representative-level exams: These exams allow brokers to recommend different investment products.
2. Principal-level exams: Principals take on supervision and compliance-related matters for brokerage firms.
3. Municipal Securities Rulemaking Body (MSRB) exams: The MSRB has its own set of rules and licensing requirements for professionals who work with municipal securities.
4. National Futures Association exams: Brokers who wish to work in the futures market take these exams.
5. Brokers take state licensing exams through the North American Securities Administrators (NASAA). Note that not every state requires a state licensing exam.

Securities Industry Essentials (SIE) Exam

The Securities Industry Essentials Exam (SIE) is the most basic exam that a financial professional must take before obtaining a FINRA license. Brokers do not have to be associated with a member firm before taking this exam – FINRA states that students and prospective employees of financial institutions may take this exam to demonstrate their knowledge of the securities industry when applying for jobs and internships.

For this exam, individuals are tested on the following key areas:

1. Types of financial products and their risks,
2. Securities market structure,
3. Regulatory agencies and their functions,
4. Customer accounts and trading, and
5. Prohibited practices in the securities industry.

Qualification Exams

The following are the basic qualification exams that a prospective stock broker may take.

Series 6 Exam – The Investment Company and Variable Contracts Products Representative Qualification Examination

This exam covers evaluating a customer’s financial profile and investment objectives. It also requires brokers to demonstrate knowledge of purchase and sales instructions. Brokers who have completed this exam should be able to recommend insurance products that are not overly risky, but products like variable annuities and variable life insurance products are often at issue in allegations of unsuitable recommendations.

Brokers who pass this exam are qualified to purchase and sell the following products:

• Mutual Funds
• Variable Annuities
• Variable Life Insurance
• Unit Investment Trusts (UITs)
• Municipal Fund securities (e.g., 529 Savings Plans)

Series 7 Exam – The General Securities Representative Examination

This exam assesses a candidate’s ability to serve as a general securities representative and tests their knowledge on basic functions, such as:

• Providing customers with information about investments
• Making recommendations
• Transferring assets
• Maintaining appropriate records
• Verifying customers’ purchase and sales instructions and agreements and confirming transactions

Once a broker has passed a Series 7 Exam, their FINRA license will allow them to participate in public offerings and/or private placements of corporate securities. This license also allows brokers to work with the following products:

• Warrants
• Mutual Funds
• Money Market Funds
• Unit Investment Trusts (UITs)
• Exchange-Traded Funds (ETFs)
• Real Estate Investment Trusts (REITs)
• Government Securities
• Options on Mortgage-Backed Securities
• Direct Participation Programs
• Sale of Municipal Securities
• Hedge Funds

Series 22 – Direct Participation Programs Limited Representative Exam

Series 22 tests a brokerage firm representative’s knowledge concerning the solicitation, purchase, and sale of limited partnerships. Brokers need this FINRA certification to become Direct Participation Programs Representatives.

Series 57 – The Securities Trader Representative Exam

Securities traders need to be able to perform several crucial jobs, including executing transactions using convertible securities or equity. Convertible securities can convert into common stock but their sale may involve proprietary trading, which is trading that takes place using the firm’s money rather than retail investors’ funds.

Brokers need Series 57 before they can engage in any of the following:

• NASDAQ equity trading
• OTC equity trading
• Proprietary trading

Series 79: Investment Banking Representative Exam

Series 79 is one of the series exams for investment banking professionals. Investment bankers advise investors on debt or equity securities. Offerings take place through a private placement, a public offering, or through a merger or acquisition.

The test covers underwriting, types of offerings, and the registration of securities. It also covers mergers and acquisitions, tender offers, and financial restructuring transactions.

Passing a Series 79 exam means that brokers can work in the following areas:

• Debt and equity offerings (private placement or public offering)
• Mergers and acquisitions
• Tender offers
• Financial restructuring
• Asset sales
• Divestitures or other corporate reorganizations
• Business combination transactions

Series 82: The Private Securities Offerings Representative Exam

Private placements are shares of a company stock that are not registered with the SEC and are not sold on a public exchange. This test covers essential information regarding the solicitation and sale of private securities products. The Series 82 exam covers providing information about private placements, making recommendations, transferring assets, and maintaining appropriate records.

Once a broker has passed the Series 82 exam, they may solicit private placements and sell private securities products as part of a primary offering.

Series 86 and 87: Research Analyst Exams

Series 86 and 87 cover the information needed to perform the duties of a research analyst. Research analysts research securities and prepare reports for clients to review.

• Series 86 covers data collection, analysis, and modeling as well as valuation and forecasting.
• Series 87 assesses the broker’s knowledge regarding the preparation of research reports and the dissemination of information.

Series 99: The Operations Professional Exam

This exam covers the operations of a brokerage firm, including the following:

• Customer onboarding
• Receipt and delivery of securities and funds
• Account transfers
• Collection, maintenance, reinvestment, and disbursement of funds

This exam includes questions on professional conduct and ethical considerations.

Principal Level Exams

If a broker wishes to work for broker-dealer or a brokerage firm in a supervisory capacity, they must pass one or more of the following exams.

Series 4 – The Registered Options Principal Qualification Exam

Brokers must pass this exam before they become registered options principals. To pass this test, brokers should have a solid understanding of the rules and statutory provisions that apply to the management of options personnel. Of course, brokers will also need to know the ins and outs of options trading and the exchange rules for options contracts.

Once a broker has passed a Series 4, they can participate in trading the following types of options contracts:

• Equity options
• Foreign currency options
• Interest rate options
• Index options
• Options on government and mortgage-backed securities

Series 9 and 10: General Securities Sales Supervisor Exams

This exam assesses competency for General Securities Supervisors, the individuals who supervise the sales activities of a broker-dealer.

Supervisors must know how to supervise sales practices and trading activities to ensure they comply with securities rules and regulations. The test also covers approving customer accounts, training sales personnel, and maintaining firm records.

Series 14– The Compliance Officer Qualification Exam

The Compliance Officer Qualification Exam tests the broker’s knowledge of the following areas:

• Regulatory Agencies (like FINRA and the SEC)
• Markets (like the New York Stock Exchange) and Operations
• Broker-Dealer Operations
• Capital Requirements
• General Supervision
• Investment Banking
• Registration
• Sales Practice – Customer/Employee Accounts
• Sales Practice Solicitations

Compliance officers may be held responsible when customers allege a brokerage firm failed to supervise.

Series 16: The Supervisory Analysts Qualification Exam

This exam ensures brokers know the rules and statutory provisions applicable to the preparation and approval of research reports. Supervisors must be able to assess the reports for accuracy.

Series 23: The General Securities Principal Qualification Exam – Sales Supervisor Module (GP)

This exam serves as an alternative to the General Securities Principal Exam (Series 24 Exam). Brokers take this exam if they are already registered as a General Securities Sales Supervisor and want to register as a General Securities Principal. Brokers who take this exam must demonstrate they can supervise general broker-dealer activities, as well as customer-related activities and market-making activities.

Series 26: The Investment Company and Variable Contracts Products Principal Qualification Exam

This exam covers questions related to the sale of the following products:

• Closed-end funds (initial offerings only)
• Mutual funds
• Variable annuities
• Variable Life Insurance

Series 27: The Financial and Operations Principal Qualification Exam

This exam covers the recordkeeping requirements of broker-dealers.

Series 28: The Introducing Broker-Dealer Financial and Operations Principal Qualification Exam

Introducing broker-dealers provide customers with the opportunity to engage in futures trading but use outside firms to execute the trades. This exam ensures a broker understands financial reporting as well as the rules governing the preservation of books and records.

Series 39: The Direct Participation Programs Principal Qualification Exam

A broker will take this exam if they want to be a direct participation programs principal. Questions cover the structure and regulation of Direct Participation Program Offerings.

FINRA Registration: What Every Investor Needs to Know

Brokers who pass exams should be thoroughly versed in regulatory rules – there is no excuse for broker misconduct and recommendations of overly risky or illiquid securities. Always check to make sure your broker is appropriately registered on BrokerCheck. They should have passed the appropriate number of exams and all the information they provide about their location and their member firm should match what appears on their profile.

If you believe your FINRA broker engaged in misconduct, contact a securities lawyer to begin an arbitration claim. Call (877) 600-0098 or email info@kurtalawfirm.com.