The Series 7, also known as the General Securities Representative Exam (GSRE), is an examination administered by the Financial Industry Regulatory Authority (FINRA) in the United States. It qualifies individuals to trade a wide range of securities, with the notable exception of commodities and futures. This comprehensive exam is a critical step for those intending to become licensed stockbrokers or wealth managers.
Scope and Coverage
Types of Securities Covered
Individuals holding the Series 7 license can sell a wide array of securities, including:
- Stocks
- Bonds
- Options
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Variable Annuities
- Direct Participation Programs (DPPs)
Exemptions
The Series 7 license does not cover:
- Commodities
- Futures Contracts
These types of financial instruments require separate qualifications and licenses due to their complex and specialized nature.
Examination Structure
Format and Content
The Series 7 exam consists of 125 multiple-choice questions, with an additional 10 unscored pretest questions. To pass, candidates must achieve a score of at least 72%. The exam covers four main sections:
- Seeks Business for the Broker-Dealer from Customers and Potential Customers (9%)
- Evaluates Customers’ Financial Profile and Investment Objectives (22%)
- Provides Customers with Information about Investments, Makes Suitable Recommendations, Transfers Assets, and Maintains Appropriate Records (91%)
- Obtains and Verifies Customers’ Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions (7%)
Historical Context
The Series 7 license has been a standard requirement since the early 1970s for professionals in the securities industry. Over the years, the content and structure of the examination have evolved to keep pace with changes in financial markets and regulatory environments.
Practical Example
Calculating Investment Position of a Hypothetical Client
Suppose a client wants to invest $100,000 across various securities covered under Series 7. A typical allocation might include:
- Stocks (50%): $50,000
- Bonds (30%): $30,000
- Mutual Funds (15%): $15,000
- ETFs (5%): $5,000
This diversified portfolio allows the client to balance risk and capitalize on different market segments.
Related Terms
- FINRA: The Financial Industry Regulatory Authority, responsible for overseeing the Series 7 exam.
- Securities: Financial instruments that represent ownership in a company or a creditor relationship with a corporation or government.
- Stock Broker: A person or company authorized to buy and sell stocks and other securities on behalf of clients.
FAQs
What happens if I fail the Series 7 exam?
Is the Series 7 license valid indefinitely?
References
- Financial Industry Regulatory Authority (FINRA)
- U.S. Securities and Exchange Commission (SEC)
Summary
The Series 7 exam and license are integral components of a financial professional’s career path, enabling the sale of a wide variety of securities while excluding commodities and futures. Understanding its scope, structure, and historical development provides a solid foundation for aspiring stockbrokers and investment advisors.
