A series of exams and licenses are used to regulate brokers, the financial professionals who buy and sell stocks and bonds.
Brokers must pass a Series 7 exam administered by the Financial Industry Regulatory Authority. The 250-question exam covers such topics as investment risk, taxes, retirement planning and account management. Aspiring brokers must correctly answer at least 125 questions within three hours to pass the test.
The next hurdle to becoming a fully licensed broker is registering with FINRA. Applicants will be fingerprinted and undergo a background check that screens for criminal activity or poor credit history. Series 7 status allows a broker to sell any type of security, such as a stock or bond, but does not allow them to sell commodities or futures contracts.
Brokers obtaining Series 6 status have more restrictive licenses that permit them to sell only mutual funds, and variable annuities and other insurance products. The 100-question Series 6 test covers tax rules and retirement plans. Candidates must correctly answer at least 70 of 100 questions within two hours. FINRA registration is also required.
Brokers maintain their licenses by complying with continuing education requirements set by FINRA and the U.S. Securities and Exchange Commission.
Candidates for both exams must be sponsored by a FINRA member. Investors can go to www.FINRA.org to verify that a broker is properly licensed and registered. FINRA urges all investors to access the agency’s BrokerCheck service before engaging a broker.
Full-service brokers remain popular with investors. According to a December survey by Spectrem Group, investors are more likely to use a broker than any other type of financial professional, including independent financial planners and independent investment advisors.