Series 7

What it is:

Series 7 is a license that is required before an individual can sell securities. Those who pass the exam for a Series 7 license are eligible to become a registered representative of broker-dealers in the United States.

How it works/Example:

To obtain a Series 7 license, the applicant must pass the Series 7 exam (also called the General Securities Representative Examination). This test primarily covers the seven critical functions performed by registered representatives: seeking business for the broker/dealer, evaluating customer needs and objectives, advising clients, managing customer accounts and account records, explaining the securities markets and the factors that affect them, executing orders for clients, and monitoring client portfolios. The Financial Industry Regulatory Authority (FINRA) administers the test.

The Series 7 examination is six hours long and contains 250 multiple-choice questions.  The candidate must answer at least 70% of the 250 questions correctly to pass.

In general, an individual cannot legally advise clients, solicit transactions, or execute transactions for clients until he or she has passed the Series 7 exam, obtained the corresponding license.

Although a Series 7 license permits the holder to sell a broad variety of securities, it does not allow the holder to sell commodities or futures (this requires a Series 3 license).

Why it Matters:

The Series 7 exam is an important step in ensuring that brokers understand and have mastered a body of knowledge about markets, investment instruments, securities law, and ethical behavior. As such, the presence of the Series 7 requirement benefits investors by requiring some level of a uniform knowledge base among brokers.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.