Securities Industry Essentials® Exam For Dummies® 2nd Edition with Online Practice
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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)
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.
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.
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!
To make this book easier to read and use, I include some icons to help you find and fathom key ideas and information.
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:
www.dummies.com/go/getaccess
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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.
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
IN THIS PART …
Chapter 1
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.
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
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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.
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.
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
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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
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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
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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
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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
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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
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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
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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
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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.
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).
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
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.
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.
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.
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.
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
The FINRA reserves the right to make all final decisions about accommodations on a case-by-case basis.
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
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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
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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 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.
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.
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).
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.
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.
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
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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:
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.
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.
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.
Check out Chapter 2 for info on setting up a study schedule and making the most of your practice exams.