A joke among newer reps goes, "If you scored higher than 70% on the Series 7, you studied too hard." The upshot: Study just enough to get by--it's not worth the time.
Whether it's the 7, the 63, the 65--or any host of other industry tests--reps sometimes view licensing exams as mere hassles, interruptions of the real business of selling rather than as valuable indicators and creators of competence.
"A two-hour test is totally a waste of time," says one disenchanted PaineWebber veteran who recently took the Series 65 exam. He says he passed easily with little studying, didn't learn anything, but had to take time off work for it.
So what's the point? "The point is so the government can get registration fees out of us ... and it creates a cottage industry for training," he concludes.
The Series 65, which is required in some states and by some firms, tests knowledge of state blue-sky laws, covers registration of securities and the 1940 Investment Adviser's Act.
"The Series 65 is a funny exam," admits Mark Emmons, vice president of Dearborn Financial Institute in Chicago, a test-training firm. "It focuses on state requirements for doing business as an adviser, what you must disclose, how investments are registered, and what can be placed in pension funds. But the information being tested is very esoteric. Who cares whether a security is registered in a state by 'notification' or some other method?"
Other licensing trainers agree that the esoteric Series 65 can sometimes seem like a waste of time to reps.
"It's a rule test. It's boring and dull as mud," says Pamela Smith of Pamela M. Smith Seminars in Los Angeles, a license training firm. "Does it prepare anyone to be an RIA? No. The reason brokers say they don't study for it is that it covers what they deal with every day. They're rules most brokers kind of know already."
The Series 7, on the other hand, is not a commonsense exam. Most agree if you don't study seriously, you're dead meat simply because there are so many topics covered in the six-hour, 250-question exam.
But it may get more hype than it's worth. Mary Schapiro, NASDR president, has compared the Series 7 to the medical exam for doctors, or the state bar for attorneys. Her comments came this past January, when, in a highly publicized case, regulators cracked down on 53 brokers in New York City who hired impostors to take their Series 7 and 63 (state law) exams.
"Someone could have a job selling carpet, pass the test [Series 7] and you're a registered rep, but it doesn't train you to earn a living," says Chris Meitz, director of compliance for FFP Securities in St. Louis. "It's not really that relevant on a daily basis."
The Series 7 asks reps to learn the rules that govern the securities business and a wide variety of topics that may or may not pertain to their future business, such as margin requirements and options. "It would be more beneficial to someone who worked in operations" than a registered rep, Meitz adds. "There are a lot of questions on the settlement procedures or how a security gets registered. That's the furthest thing from a rep's mind."
But "you'll never know what infinitesimal piece of information [from the Series 7] might be a selling point," counters a training coordinator at one major firm who asked not to be identified. Still, "I don't view the position as one that requires you to have your Ph.D. in economics," the training coordinator says. "What a broker does is more of a marketing effort ... the greatest challenge my brokers face is getting their marketing message out."
Others, however, think the industry needs to get away from the marketing gimmicks and promote professionalism and real knowledge of investing. This might entail making the gateway exams more rigorous and intellectually challenging.
"If the industry really wants to be a professionally-oriented industry, the entry barriers need to be tough," says Michael George, a broker in New Orleans who left Dean Witter recently to start his own financial planning firm.
"If financial consultants are coming into this business and giving people advice, they need to have a deeper knowledge of investments and investment products than what the Series 7 gives them," George says. "The Series 7 gives you a good broad primer of the investment business, but doesn't go into great detail of investments specifically, and doesn't teach you the fundamentals of investing." George believes brokers should be required to know the type of information covered in level one of the Chartered Financial Analyst program, such as details of retirement plans and estate planning. That might require making the Series 7 a two-day test, he notes.
Brokers also should know economic questions, George says. "If a client comes in and says, 'I saw on TV that the PPI is lower than expected, what's that going to do to the market?' Don't you think a stockbroker should be able to answer that question?"
Moreover, in an industry shifting increasingly toward the fee-based business, some say the industry's qualifying exam will become unnecessary.
"If I were just getting in the business today, I would not take the Series 7," says Len Reinhart, head of the Lockwood Financial Group, an investment firm based in Malvern, Pa. "I would directly build my registered investment advisory business."
Reinhart sees the transaction part of the business becoming less and less necessary. He eventually sees the RIA structure replacing the Series 7 brokerage license for many reps. "When 80% to 90% of their revenues are fee-based, they're asking us, why do I need my Series 7 to do this?"
But for wirehouse reps, it's not an option. Firms require the 7, along with several others: the 63, 65 and a state insurance test. Those involved in training say that ultimately, the Series 7 is a good baseline exam and offers reps a solid start on a broad array of products their firm will provide further training on.
"This is the minimum you need to participate in this job," Emmons says. "You may never need what was tested on municipal securities or options, but it was there."
Brokers shouldn't malign the licensing exams, trainers add. Just as passing the bar doesn't make one a great attorney, so it is with brokers.
"I hate to see the Series 7 being looked at as a trashy little test," Smith says. "It's a good test and quite adequate for determining people's competency. In a perfect world, these guys would all be proficient in economics, all be MBAs and CFPs. But you're asking a whole lot from a broker to be a CFP right from the start."
Just as brokers are tempted to get by with minimal studying for licensing exams, reps sometimes skimp on their continuing education requirements for insurance--aided by product providers, and in some cases, firms.
One rep says insurance wholesalers routinely provide answers to continuing education certification exams or will give continuing education credit for little effort.
"A variable annuity wholesaler will come in here, buy me lunch, and have the ability to give two hours worth of continuing education credit," says one broker. "It's a sham. We figure out ways around the system."
One anonymous rep, who posted a message on a broker chat forum, claimed his firm helped him cheat outright on an insurance continuing education certification exam. He said he was given answers to the test and instructions to miss a certain number of questions.
State insurance commissioners say few brokers come forward to admit such cheating, but they would like to see more complaints. Both brokers and continuing education providers risk losing their insurance licenses for cheating. States, as a matter of practice, conduct audits on education providers to make sure courses match requirements.
"It's unfortunate," says Cathyann Christians, education coordinator for the licensing group of the Texas Department of Insurance. "We don't very often get people coming forward to say, 'My company gave me the answers,' or to complain that the course they took is a joke. ... We need more of those people."
This year, Texas passed a law disallowing open-book, self-study exams for continuing education. The insurance commissioner found that many participants were receiving credit for courses and exams that took them significantly less time to complete. Tests now must be monitored by a third-party, disinterested person who agrees to sign an affidavit attesting that the test-taker did not use materials on the test. The point is to get them to read the materials, not skim them while taking the exam. Two other states, New Jersey and Minnesota, do not allow credit for self-study programs.
As is typical in insurance licensing, bordering states often give a vastly different number of credit hours for the same courses. The same Annuity Concepts course offered by Indianapolis-based Pictorial, for instance, earns two credits in Washington, four credit hours in Oregon and California, 22 in Nevada, six in Utah and 28 in Colorado.
Firms say a national standard would make insurance continuing education much less cumbersome, but they admit that's no excuse for brokers' skimping.
"It can be a real hassle and can be time-intensive and costly," says a spokesperson at EVEREN Securities. "But it has become a big responsibility for brokers."
