Tag Archives: Series 6

There are a number of important regulatory issues concerning sales practices associated with municipal fund securities and, therefore, 529 plans. The cornerstone of the securities industry is the principle that brokers, dealers, and municipal securities dealers conduct their business fairly with all persons and not engage in a deceptive, dishonest, or unfair practice. (The MSRB’s Rule G-17 is at the core of its customer protection rule.) This simple statement contains the underlying premise that sales activities may not mislead the public and that errors of omission or misstatements of fact are contrary to fair and equitable trade practices. Therefore, if a customer purchasing a Section 529 plan can benefit from an unlimited state tax benefit, then not informing the client of this fact violates MSRB and FINRA rules.

In fact, the MSRB stated in 2006 that dealers have an affirmative obligation to make the following disclosures to any client purchasing an out-of-state 529 plan.

• Depending on the state in which either the client or the plan’s beneficiary resides, favorable state tax treatment may only be available only if the client invests in his home state’s 529 plan.

• Potential state tax benefits are one of many factors that the client should consider in making a decision.

• The client should consult with his financial or tax adviser about his particular situation to determine the advantages and limitations of investing in his home state’s 529 plan. He may also want to contact his home state and other states to learn more about their plans.

One of the ways of fulfilling this “out-of-state disclosure obligation” is to include these disclosures in the plan’s official statement (program disclosure document). If this is the case, however, they may not be buried in the fine print—they must be included in a way that they are “reasonably likely to be noted by the investor.” The client must also receive the official statement no later than the time the sale takes place.

If these disclosures are not included in the official statement, then the dealer must provide them separately either before or at the time of the transaction.

In its guidelines concerning communications with the public, FINRA states that member communications must be clear and not overly complex or technical in order to avoid confusion. In such cases, a lengthy, highly technical explanation may be more confusing than shorter, less technical information. Sales material and advertising should also take into account the audience who receives the information. Different levels of explanation may be necessary for varied categories of clients, and it may be difficult to limit the audience to a particular piece of information. When using promotional material, it is important to state the potential tax implications associated with a particular product. General references to tax-exempt or tax-free may not be sufficient unless the product is in fact both federal and state tax-free. An indication should be made as to which taxes apply, if any, or which taxes do not apply. A registered representative should act prudently when recommending a particular 529 savings plan to an investor. Consideration should be given as to why the investor is purchasing the plan, when the funds will be needed, the risk of loss of principal, and market performance failing to meet expectations. A determination should be made as to the ultimate goal, i.e., how much money needs to be invested in order to achieve the desired result and whether the individual can sustain the program over the necessary time frame. The commissions that the registered representative expects to earn from the sale should not be part of this analysis.

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation


Hi Everyone,

This next video blog covers the taxation of withdrawals from variable annuities. Enjoy!

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation


Hello Everyone,

Unit Investment Trusts appear on many Finra exams. We thought it may be helpful to review them here.

A unit investment trust (UIT) may look like a mutual fund but it is not. Similar to a mutual fund, a UIT is required to register with the SEC under the Securities Act of 1933 and the Investment Company Act of 1940. UIT portfolios are created to meet a stated investment objective, just like to a mutual fund. However, unlike a mutual fund, these portfolios are not actively managed. Instead, once created, a UIT follows a buy and hold strategy.

A mutual fund can continue to issue new shares theoretically for perpetuity. A UIT, however, will cease to exist after a specific date, often call the termination date. The date when the trust will terminate or dissolve is established upon the creation of the UIT. If securities remain invested in the portfolio on the termination date, they will be liquidated and the proceeds paid to the investor.

Some UITs are in existence for as little as one year. Others have a life that spans more than 50 years. Due to the buy and hold strategy and time horizon, there may be instances where the securities within the UIT are worthless, upon dissolution. Therefore, as with all investments, the amount received upon sale or dissolution may be less than the original investment; a profit is not guaranteed.

A UIT can be organized under a contract of custodianship or agency, trust indenture, or a similar instrument and therefore, it is not required to have a board of directors. The UIT will issue redeemable securities or units that represent an undivided interest in a portfolio. Unlike mutual funds, this fixed portfolio is issued through a one-time public offering.

The UIT stands ready to redeem (buy back) the investors units at their calculated net asset value (NAV). In addition, a UIT sponsor will often maintain a secondary market allowing investors to purchase previously redeemed units.

Types of UITs

 The sponsor will also be responsible for selecting the securities, which will compose the portfolio, keeping in mind its overall investment objective. Portfolios are created using equity securities or fixed income securities.

Some UITs mirror a specific index. Other portfolios are created using a quantitative selection process chosen by the sponsor. Another strategy is to create a series of short-term trusts that investors can use as part of their long-term investment planning. When a short-term trust is ready to dissolve, the investor is given the opportunity to invest in the next trust in the series, therefore maintaining a long-term strategy. Investors who rollover their money into the next trust usually receive discounted sales charges (more about these soon). Whether long-term or short-term, the trust is supervised by a professional investment manager.

Equity Unit Investment Trusts have portfolios consisting of domestic and/or international equity securities that are constructed to meet various investment objectives. Common objectives for an equity UIT include capital appreciation and income. The portfolio of an equity UIT with a capital appreciation objective would be invested in growth or aggressive growth stocks, while an equity UIT with an income objective would invest in preferred stock or dividend paying common stock.

Fixed Income Unit Investment Trusts feature portfolios primarily consisting of fixed income securities such as bonds. These portfolios can include both international and domestic securities that can provide a steady stream of income. Some trusts may be created with the objective of providing a tax advantages to investors while others are more conservative and seek capital preservation.

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation

Taking a regulatory exam can be a stressful experience. However, if you know what to expect beforehand, it will not be a traumatic one.

The FINRA Regulatory Examination Committee has zero tolerance for cheating. It goes to great lengths to prevent it, and has fined and suspended associated persons caught cheating from working with a FINRA member.

When you arrive at the examination center, you will be asked for up-to-date, government-issued picture identification such as a driver’s license or passport. A locker will be provided for coats, purses, phones, and other belongings. The only possessions permitted in the testing room are identification and locker key.

You will be fingerprinted, scanned with a metal detector, and instructed to empty your pockets. When you enter the testing room, you’ll be provided with a basic calculator that does basic addition, subtraction, multiplication, division but no exponent capability, as well as writing materials. The materials are usually a fine-tip, dry-erase marker and some form of dry-erase board. It’s usually three sheets of the dry-erase paper on a key ring, so you may need to flip back and forth if you make notes.

People will be taking different types of exams. While the room will be quiet, some centers supply headphones for those who are easily distracted. Centers usually videotape their testing room, so expect to see cameras.

Before starting, you will be given a tutorial on how the system works, how to choose answers, and how to grade your exam. A few students have commented that the fonts and feel of the software seem dated but, aesthetics aside, the functions (e.g., mark for review) will be similar to your STC Practice Exams.

You are allowed restroom breaks during the exam. However, the exam timer does not stop. If you finish all the questions early, you are allowed to leave, although the time you save does not carry over to an afternoon session. Each time you take a break, you will be required to place your fingers in the scan and show identification.

There is a maximum 60-minute break between the two parts of the Series 7 Examination. During this time, you are permitted to leave the building. Most students don’t wander far, often returning before the time is up. The two parts are like two separate exams. You can’t go back to Part One to revisit the questions, and you don’t learn your final score until you complete the second part.

After you choose to grade the exam, it takes approximately 30 to 40 seconds for the computer screen to display your score. As you leave the testing room, the center will collect the calculator and writing materials and will give you a paper copy of your grade—hopefully a passing one.

For more information, go to https://www.prometric.com/en-us/Pages/home.aspx

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation

In July 2012, the new FINRA Suitability Rule 2111 became the standard for all broker-dealers to adhere to. Suitability is a large component of the Series 7 Examination and may also be covered on the Series 6, 10, 24, and 26 Examinations. With this in mind, let’s review FINRA Rule 2111. The rule is divided into parts A (retail investors) and B (institutional investors). We will discuss Part A only as it relates to your regulatory examination.

The rule states: “A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to,

  1. The customer’s age
  2. Other investments
  3. Financial situation and needs
  4. Tax status
  5. Investment objectives
  6. Investment experience
  7. Investment time horizon
  8. Liquidity needs
  9. Risk tolerance
  10. Any other information the customer may disclose to the member or associated person in connection with such recommendation”


Clearly, the Rule 2111 list is long and specific. However, since FINRA acknowledges that some firms currently ask customers for this information without using these specific terms, the rule does not dictate the use of specific terminology or a method for obtaining this information.


If a firm decides to exclude any of these factors as irrelevant, it needs to explain in writing why it is not requesting the information. (Age, for example, would not be relevant for clients that are entities.)


FINRA confirms that nothing in the rule changes the long-standing practice that suitability becomes an issue as soon as the firm or one of its associated personnel makes a recommendation.

FINRA spells out several guiding principles for determining whether a communication is a recommendation.

  • Content, context, and presentation are important—e.g., would it be reasonably viewed as a suggestion to take or not take action?
  • The more individually tailored a communication is, the more likely it will be classified as a recommendation.
  • Although a series of actions that, considered individually, may not be considered a recommendation, may collectively be viewed as one.
  • A recommendation does not need to come from a live person—it may be computer-generated.

FINRA also notes that a recommendation is not suitable just because the client agreed to act upon it, and that a firm (and its personnel) may not avoid liability for unsuitable investments by using disclaimers.

Rule 2011 identifies three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability. Each one must be addressed with regard to recommendations to clients.

Reasonable-Basis Suitability: Is it appropriate for anyone?  According to FINRA, “Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors.”

In general, the amount of diligence that a firm or its associated personnel is required to undertake will vary depending on the complexity and potential risks of the investment product or strategy, and how familiar the firm or its personnel are with the product or strategy. The firm and its personnel must understand the potential risks and rewards associated with recommendations made to clients.

Customer-Specific Suitability: Is it appropriate for that client? FINRA states “Customer-specific suitability requires that a broker have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. …. The new rule requires a broker to attempt to obtain and analyze a broad array of customer-specific factors.”

Quantitative Suitability:  Are you trading too much? The third and final obligation under the new suitability rules addresses discretion. It is called quantitative suitability and requires a registered representative “who has actual or de facto control over a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.”

While FINRA does not state how many questions may appear on a given topic, we believe that you should be prepared to answer a number of questions covering the various aspects of suitability.

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation

Following FINRA’s changes to the Series 7 Content Outline in late 2011, exchange-traded funds (ETFs) became a topic that is a potential test item students may see on their exam. You can read more about ETFs in our Study Manual, but let’s visit them briefly here.

Exchange-traded funds are investment companies, either open-end or unit investment trusts, that differ from mutual funds in the way they are issued, traded, and redeemed. Investors can buy ETFs that track essentially every sector of the equities markets, as well as ones for fixed-income securities, commodities, currencies, metals, and hedge funds. Most recently, ETFs have been created that are leveraged 2 or 3 times to an index, as well as ones that are leveraged to the inverse of an index. We will discuss leveraged and inverse ETFs and the concerns they raise in a separate blog. For now, we will focus on traditional ones and the ways they differ from mutual funds.

One disadvantage of a mutual fund is that there is no secondary market for its shares. Shares can be redeemed only by the mutual fund company. Since shares must be redeemed at the fund’s closing net asset value (forward pricing), the investor does not know the full redemption value of the shares until the market closes for that day.

The inconvenience of forward pricing may be apparent especially in circumstances where an investor is engaging in a same-day substitution, selling a mutual fund with the intention of using the proceeds for the purchase of another securities product. If the full redemption price of the mutual fund is not known, it is difficult to invest in another product simultaneously with the sale of the fund. This problem is most critical in a tax-deferred account where the customer may have limited funds to invest without making additional contributions.

ETFs do not have forward pricing. They trade in the secondary market and can be purchased or sold anytime throughout the trading day. Therefore, the liquidation value is known immediately and the investor can reinvest the proceeds without delay. It is easy to move in and out of most ETF positions. However, this ease of purchasing and selling ETF shares can cause inexperienced individuals to make inappropriate trading decisions. They may find themselves entering and exiting a position more frequently than necessary, generating excessive commissions that outweigh any gains they may have realized.

There are management fees and administrative costs associated with both mutual funds and ETFs. These fees and costs increase the expense ratios of both. Active management results in higher management fees and administrative costs. Actively managed mutual funds have the highest expense ratios. Passively managed index mutual funds have expense ratios that are lower than actively managed funds because management fees and administrative costs are lower.

Since mutual funds are purchased and redeemed directly from the issuer, they may not be sold short. Selling short and rapidly covering is attractive to the short-term trader, and also to a money manager who wants to take short positions in overvalued sectors to hedge long bets made on stocks. Since ETFs may be sold short, they have an advantage over mutual funds.

Mutual funds may not be purchased on margin. ETFs may, and, in the hands of experienced investors, can enhance returns. If the wrong investment decisions are made, however, margin can amplify losses and have a negative impact on an investor’s portfolio. Consequently, the use of margin may be suitable for some investors but not for others.

An actively managed fund will produce capital gains as its managers buy and sell stocks, which the fund must pass on to its shareholders once each year. This means that investors may incur capital gains taxes even if the net asset value of the mutual fund has actually declined in value or remained the same.

As with index funds, ETFs tend to minimize capital gains taxes since their turnover is usually low. ETFs can be redeemed the same way, minimizing the purchase and sale of securities within the fund. Traditional ETFs will remove securities and replace them only when the underlying index changes and the fund must rebalance its holdings.

While FINRA does not state how many questions may appear on a given topic, we believe that you should be prepared to answer a small number of questions about ETFs.

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation

Recently, U.S. equity markets updated their market-wide circuit breakers rule. For those unfamiliar with circuit breakers, they are used to protect investors from a huge decline in overall stock prices.

STC has written a summary of the updated rules.

The changes in the circuit breaker rules, which are designed to address extraordinary volatility across securities markets, include (1) replacing the DJIA with the S&P 500® Index as the reference index, (2) recalculating the values of the triggers on a daily basis rather than quarterly, (3) reducing the market decline trigger percentages, (4) shortening the length of the trading halts associated with each market decline level, and (5) modifying the times when a trading halt may be triggered.

 Trigger Value Time Action (all times Eastern Time)

 Level 1: 7% decline between 9:30 a.m. and 3:25 p.m.—15 minute trading halt

Level 2: 13% decline between 9:30 a.m. and 3:25 p.m.—15 minute trading halt

Level 3: 20% decline anytime trading halts for the remainder of the day

 At or after 3:25 p.m., trading will continue unless there is a Level 3 halt.

The Dow Jones Industrial Average (DJIA) was used as the benchmark for the old circuit breaker rule. It’s actually one of the oldest financial benchmarks in the world, created at the end of the Nineteenth Century. It was named after the persons who created it, Charles Dow and Edward Jones. Their intent was to create an overview of U.S. stock prices. There was actually a transportation index created before the industrial index, creatively called the Dow Jones Transportation Index.

The industrial index was composed primarily of industrial companies. Dow and Jones may have been financial pioneers, but they lacked pizazz when naming things. Anyway, the index originally had companies dealing with rubber, coal, electricity, and natural gas (i.e., industrials). The index is now comprised of industrial juggernauts such as Disney, Microsoft, and Bank of America, which aren’t really industrial companies so the name really doesn’t fit anymore. Nowadays, the Dow Jones Industrial Average is really 30 of the best companies in the U.S., regardless of the industry they’re in.

The most important aspect of the DJIA is how the value is calculated. It is price-weighted. To determine the value, the prices of all 30 companies are added and the result is then divided by the number of companies in the index.* The denominator, also known as the Dow Divisor, started off as the number of companies in the index, which created the average** that most people are familiar with. Over the years, the Dow Divisor needed to be updated for spinoffs, stock splits, and stock dividends. We’ll skip the adjustment calculation, but today the divisor is about 0.13, which means the index value is greater than the sum of the prices of the stocks. It doesn’t look much like a typical average.

The other issue with the Dow (and really any price-weighted index) is that it doesn’t reflect changes in total value or market capitalization of the index. Let’s simplify things a bit and say the DJIA only has two stocks. Company A is relatively small, has only100 shares outstanding, and a market value of $100. Company B has 1,000,000 shares outstanding and a market value of $10. Company A has a market cap of $10,000 (100 shares x $100) and Company B’s market cap is $10 million (1 million shares x $10). Economically speaking, Company B is contributing much more to the total value of the U.S. stock market. However, changes in Company A’s price will have a larger effect on the index because one of its shares is worth 10 times as much as Company B’s ($100 compared to $10). In short, price-weighted indexes (e.g., DJIA) make no adjustment for the total value of a company. They simply consider the value of a single share.

*Formula form:

(Σ (Stock Price))/(Number of Companies in the Index)


(Σ (Stock Price))/(Dow Divisor)

**It’s officially an arithmetic average in case the math police are reading this.

The flaw in a price-weighting index became a bigger issue as U.S. equity markets became more valuable. Industry analysts began using a new index valuation method—market-value indexing. Market value (capitalization-weighted) indexes use a weighted average to calculate the index’s value. To derive the value of a market-weighted index, add the number of shares outstanding multiplied by the market price of the shares for each company in the index and divide by the total number of shares for each company in the index.***  I’ll admit that’s a bit of a simplification. In reality, the denominator, the number of shares, will need to be adjusted for spinoffs, stock splits, and stock dividends, much like the Dow Divisor. By taking a weighted approach, price-weighted indexes tend to more accurately represent the total value of the shares in the index. Small companies no longer have a large effect on the value of the index, unlike the DJIA.

***Formula form:

(Σ (Price x Quantity))/(Σ Number of Shares)


(Σ (Price x Quantity))/Divisor

There are quite a few market-weighted indexes. In fact, the Dow is somewhat unique as a price-weighted index. The circuit breaker rules now use the S&P 500, which tracks some of the 500 largest market cap stocks in the U.S. The specific companies that make up the index are chosen by a committee. The methodology can be read about here. While the S&P is a broader index than the Dow, its goal is the same—to provide a summary of the U.S. stock market. The S&P 500 Index is also calculated a bit differently than described in the previous paragraph. Instead of using the total number of shares issued, the S&P uses only the number of shares freely available (public float), which is known as float-adjusted weighting. In finance, creativity is never wasted on naming things. The difference is sometimes significant, but won’t really change the basic understanding of market value indexing.

Thanks for spending time with us. We hope you found it worthwhile.

—Securities Training Corporation

Tricky Question Episode 1

There are always some practice exam questions that students bring to our attention. These questions are generally confusing to them, even after reading the explanation. In this and upcoming posts, we’ll try to shed light on the more difficult exam questions we’ve written. If you have suggestions for future questions, let us know. Today we’re discussing a favorite from our Series 7 Course.

An investor who wishes to hedge a portfolio of preferred stocks would buy which TWO of the following options?

I.            Yield-based option calls

II.            Yield-based option puts

III.            Interest-rate option calls

IV.            Interest-rate option puts

A. I and III
B. I and IV
C. II and III
D. II and IV

The person who came up with Roman numeral questions deserves a spot in the test-writing hall of fame. This type of question is a very effective way to test your full understanding of a concept within the confines of a single question. Many students, however, dislike them with a passion.

The best way to approach them is to ignore the choices (a), (b), (c), and (d) at first and to focus on the Roman numerals (I), (II), (III), and (IV). Think about which numerals you feel may be correct and which ones may be incorrect. From there, you can usually eliminate choices and make a better decision or, in some cases, a better guess. For example, if you know that (I) is correct in the above question, you can eliminate choices (c) and (d), since neither choice includes (I).

As you analyze the stem of the question, you see that it states that an investor wishes to hedge preferred stock. This question requires that you know how preferred stock is priced—specifically, that its price is derived mostly from interest rates, just as with bonds. In general, preferred stock and bonds are much more alike than preferred and common stock. Preferred and bonds both pay fixed income. Both have a higher priority in the event of liquidation, and both prices move in the opposite direction of interest rates.

Remember, if interest rates are rising, preferred (or bond) prices are declining and vice versa. If an investor owns preferred stock (or bonds), she is concerned that the price of her shares will decline and interest rates will rise. To summarize, this investor needs to protect against (1) preferred stock/bond prices declining and (2) interest rates rising.

There are two types of options that will help protect the investor. The complicated part in answering the question is knowing that interest-rate options are price-based and yield options are yield-based. They’re sort of opposites of one another. Interest-rate options are really just bond options.* If you buy an interest-rate call, upon exercise you’re buying a Treasury bond. This is exactly how a stock option works. So, if you think the price of Treasury bonds will rise, buying an interest-rate call is a profitable strategy. This is why they’re called price-based options. In the question, though, we’re trying to profit (hedge against) when the price is falling, so we need to buy an interest-rate put option.** Now we’re closing in. Buying interest-rate puts is choice (IV), thereby eliminating choices (a) and (c).

*Which is why the term interest-rate options is a misleading name. They should’ve named them bond options.

**Buying options is typically the best hedge. Shorting options, while fun, is not a good hedge since the trader loses control if the option is exercised.

What about numerals (I) and (II), the yield-based options? Yield-based options are based on the yield. As a reminder, bond yields move in the same direction as interest rates. Investors who think yields or interest rates will rise should buy yield-based calls. This is why yield-based options are based on interest rates and yields.

How does an investor exercise these options? In theory, someone who buys a yield-based call, and then exercises it, would buy the yield. But, you can’t really do that. Those yields don’t exist tangibly like a bond exists. They’re just numbers.*** These options have some existential issues.

To work around the small issue of yields not existing, the exchanges have made them cash-settled. Cash-settled options are a lot like gambling. The buyer of a yield-based call, instead of buying anything, will simply receive money from the seller if yields rise. The amount he gets is simply the difference in the actual yield and the strike yield (i.e., the in-the-money amount).

Cash settlement has been a Pandora’s Box for financial markets, leading to things like this. Back to the question at hand, we need to hedge against interest rates (or yields) rising. So, the best option would be buying a yield-based call—numerals (I) and (IV) are correct, which is choice B. One down, 249 questions left to answer correctly for the regulatory examination.

*** I realize Treasury bonds are book-entry securities and aren’t really tangible either. In any event, the bond is much easier to buy conceptually than the yield is.

Thanks for reading; we hope you found it worthwhile.

-Securities Training Corporation

What is the purpose of a practice exam and how should you use it?

Practice exams are designed to help you understand concepts that are tested on the real thing. Many of these exams have a reputation for being challenging and often poorly worded. Your goal should be to walk into the real exam understanding concepts so well that no matter how a question is worded, you can answer it simply because you understand the concept behind the question. When you first begin taking practice exams, they should:

  1. Prepare you to apply the knowledge you learned reading the study materials
  2. Highlight the areas you have read but do not understand
  3. Improve your ability to focus on relevant parts of a question and discard any details designed to distract you from the right answer.

So what is the key to success with taking the practice exams?

The best recommendation is to take a practice exam in a quiet setting from beginning to end; preferably with no breaks or distractions. Recreate the real exam experience as much as you can. Once you complete the exam and receive your score review the diagnostic breakdowns that we provide with each exam. We show you where your weak areas are in that particular exam.

The next step is to study those week areas in your study manual or in the class notes that you would have from a class that you may have taken already. The most important aspect of this is to make sure you don’t just jump to a brand new exam and try again. If you don’t study your weak areas in between tests you won’t improve your knowledge of a concept and you will continue to perform poorly. As mentioned in a previous blog, avoid retaking the same exam over and over again and believing the increasing scores reflect actual knowledge. In reality, it only demonstrates the fact that a person has memorized this particular exam.

Periodically we talk to people who have taken 5 or 6 exams and are consistently failing them. These people are frustrated and worried that they may fail the real exam since “I just don’t seem to be getting it.” The first question we always ask is about their exam taking habits. Consistently we will hear that they have been reading the explanations to the questions, but nothing else. This means they don’t really understand what areas they aren’t doing well in. They may think they have an understanding, however, their consistent failures prove otherwise. The lesson here is simple. Study in between each exam, based on the diagnostics in our tests. You should see your scores in those weak areas improve with each exam. If after doing this for 2-3 exams you don’t seem to be getting any better, you should call us at our Instructor Hotline for some more support and guidance. That number is 1-800-STC-EXAM.

Thanks for reading; we hope you found it worthwhile.

-Securities Training Corporation

We often are asked about the best approach to taking practice exams. Your approach is crucial to preparing properly for passing an exam. Regardless of which exam you’re studying for, there are methods that will work for you and those that won’t.

The most important point is to make sure that you’re not consciously or unconsciously memorizing test questions. If you spend time doing this, you’re going to be in for a big surprise when you turn on your computer at the test center. FINRA and NASAA are clear about the fact that their exams are confidential and cannot be copied. So while every publisher of preparation materials attempts to simulate the regulatory exam, they cannot be identical because the regulators do not allow it.

Memorizing typically happens when you take the same exam over and over, hoping to improve your score, thinking a higher score means better comprehension. Higher scores come with understanding the material, not memorizing practice questions.

Imagine that I am going to give you a multiple-choice, 100-question physics test tomorrow. You study for it by skimming through a physics book, taking the test and, naturally, failing it. I supply the correct answers along with explanations for each question. The following day, if you take the same physics test, you will do a bit better because you know the answers to the questions. Several days later, I give you the same test again. Now, I suspect you will score in the 80s or 90s because it is the third time you have seen this exam. Based on this, can you call yourself qualified as a physicist? Of course not. 

What if I gave you a brand new physics test next week? Do you think you’ll pass that exam because you finally scored high on the third attempt of the last test? Doubtful isn’t it? If we repeat this three-attempts process with 10 physics exams over the course of a few weeks, you would eventually have aced all the physics exams. Are you a physicist now?

The same logic applies in studying for the Series 7 or Series 24 exam. It is comprehending the material, not memorizing the questions that results in a passing score.

The best approach to taking tests is to continuously challenge yourself with questions you have never seen before, just like the new questions you will see on your regulatory exam. We’ll talk about this more in our next blog.

Thanks for spending time with us. We hope you found it worthwhile.

-Securities Training Corporation