Complete Guide to Series 86 & 87: Everything You Need to Know

What is the Series 86 & 87 Exam?

The Series 86 & 87 exams, officially titled the Research Analyst Qualification Examination (Series 86) and the Research Analyst Content Outline Examination (Series 87), are a pair of exams administered by the Financial Industry Regulatory Authority (FINRA). These exams are required for individuals seeking to become qualified research analysts in the securities industry, specifically those who prepare and publish research reports on equity securities.

The Series 86 exam focuses on the practical application of research analysis and valuation methodologies. It assesses a candidate's ability to analyze financial statements, understand economic indicators, value securities, and make informed investment recommendations. This exam also covers regulations and ethical considerations applicable to research analysts.

The Series 87 exam, on the other hand, is more focused on the content outline and regulatory aspects of research analysis. It tests a candidate's knowledge of FINRA rules, SEC regulations, and other applicable laws pertaining to research reports, conflicts of interest, and trading practices. It ensures research analysts understand the legal and ethical boundaries within which they must operate.

Passing both the Series 86 and Series 87 exams is a prerequisite for becoming a qualified research analyst. This qualification is essential for individuals employed by broker-dealers who are responsible for preparing and distributing research reports to the public. It demonstrates to employers, regulators, and the public that the individual possesses the necessary knowledge and skills to perform their duties ethically and competently. According to FINRA.org, registered representatives must pass these exams to conduct research and provide recommendations to clients.

In essence, these exams ensure that research analysts are well-versed in both the technical aspects of investment analysis and the regulatory framework governing their profession, contributing to the integrity and transparency of the financial markets.

Who Needs the Series 86 & 87 License?

The Series 86 & 87 licenses are specifically designed for individuals who work as research analysts at broker-dealer firms. These professionals are responsible for preparing and publishing research reports on equity securities. Essentially, if your job involves analyzing companies, industries, and markets, and then disseminating your findings and recommendations to clients or the public through research reports, you most likely need these licenses.

More specifically, individuals who fall into the following categories typically require the Series 86 & 87 licenses:

• Equity Research Analysts: These analysts specialize in researching and evaluating equity securities (stocks). They analyze financial statements, assess industry trends, and develop investment recommendations for specific companies or sectors.
• Fixed Income Research Analysts (Potentially): While the Series 86 & 87 are primarily focused on equity research, individuals working on fixed income research might also need these licenses depending on the scope of their research and the types of securities they cover. It's essential to check with your firm's compliance department.
• Research Associates: These individuals assist senior research analysts in gathering data, building financial models, and preparing research reports. While they may not be the primary authors of the reports, they are still involved in the research process and often require the licenses.
• Supervisors of Research Analysts: Individuals who supervise or manage research analysts may also need to hold the Series 86 & 87 licenses to ensure they have a thorough understanding of the applicable regulations and best practices.

It's important to note that the requirement for the Series 86 & 87 licenses is determined by the specific responsibilities of the role and the policies of the employing firm. Broker-dealers are responsible for ensuring that their research analysts are properly qualified and registered with FINRA. Therefore, it is crucial to consult with your firm's compliance department to determine the specific licensing requirements for your position. According to FINRA rules, firms must sponsor candidates for these exams, meaning you must be associated with a member firm to be eligible to take them.

In summary, if your role involves creating and publishing research reports that make recommendations on equity securities, the Series 86 & 87 licenses are likely a necessity. Failure to obtain the required licenses can result in regulatory sanctions and hinder your career progression in the research analyst field.

Series 86 & 87 Exam Format and Structure

The Series 86 and 87 exams are administered as computer-based tests (CBTs) at Prometric testing centers. Understanding the format and structure of each exam is crucial for effective preparation. Here's a breakdown of each:

Series 86: Research Analyst Qualification Examination

• Number of Questions: 100 multiple-choice questions
• Exam Time: 4 hours (240 minutes)
• Passing Score: 70%
• Question Format: The questions are primarily scenario-based, requiring candidates to apply their knowledge to real-world situations. They often involve analyzing financial statements, evaluating investment opportunities, and making recommendations based on research findings.

Series 87: Research Analyst Content Outline Examination

• Number of Questions: 50 multiple-choice questions
• Exam Time: 1.5 hours (90 minutes)
• Passing Score: 70%
• Question Format: This exam focuses on regulatory knowledge and requires candidates to demonstrate their understanding of FINRA rules, SEC regulations, and other applicable laws. Questions often involve identifying violations, understanding conflict of interest rules, and applying regulatory requirements to specific situations.

Both exams are closed-book, meaning that candidates are not allowed to bring any reference materials into the testing center. A basic calculator is provided on the computer for calculations. Candidates should familiarize themselves with the calculator's functions before the exam.

The questions on both exams are designed to assess not only knowledge but also the ability to apply that knowledge in practical scenarios. Therefore, it's essential to focus on understanding the underlying concepts and principles rather than simply memorizing facts. Practice questions are crucial for developing the ability to analyze and interpret complex scenarios.

Candidates should also be aware of the exam's time constraints. Developing effective time management skills is essential for completing all questions within the allotted time. Practice exams can help candidates gauge their pacing and identify areas where they need to improve their speed and accuracy.

Finally, it is recommended to review the official FINRA content outlines for both exams to ensure that you are covering all the required topics. These outlines provide a detailed overview of the subject matter that will be tested on the exams.

Topics Covered on the Series 86 & 87

The Series 86 and 87 exams cover a wide range of topics essential for research analysts. Understanding the specific areas tested on each exam is crucial for developing an effective study plan. Here's a breakdown of the key topics:

Series 86: Research Analyst Qualification Examination

The Series 86 exam focuses on the practical application of research analysis and valuation methodologies. Key topics include:

• Financial Statement Analysis: Understanding and interpreting financial statements, including the balance sheet, income statement, and cash flow statement. This includes analyzing key ratios and metrics to assess a company's financial performance and health.
• Valuation Methodologies: Applying various valuation techniques, such as discounted cash flow (DCF) analysis, relative valuation (e.g., price-to-earnings ratio, price-to-book ratio), and asset-based valuation.
• Economic and Industry Analysis: Assessing the impact of macroeconomic factors and industry trends on company performance and stock valuations. This includes understanding economic indicators, industry life cycles, and competitive dynamics.
• Equity Securities: Understanding the characteristics of different types of equity securities, including common stock, preferred stock, and warrants.
• Fixed Income Securities (Limited): While primarily focused on equity, a basic understanding of fixed income securities and their valuation is helpful.
• Technical Analysis: Using charts and other technical indicators to identify patterns and trends in stock prices.
• Quantitative Analysis: Applying statistical and mathematical techniques to analyze financial data and make investment decisions.
• Research Report Writing: Understanding the components of a research report and the best practices for communicating investment recommendations.
• Regulatory and Ethical Considerations: Understanding the regulations and ethical standards that govern research analysts, including those related to conflicts of interest and insider trading.

Series 87: Research Analyst Content Outline Examination

The Series 87 exam focuses on the regulatory aspects of research analysis. Key topics include:

• FINRA Rules and Regulations: Understanding the specific FINRA rules that apply to research analysts, including those related to research report content, dissemination, and conflicts of interest.
• SEC Regulations: Understanding the relevant SEC regulations, such as Regulation AC (Analyst Certification) and Regulation FD (Fair Disclosure).
• Conflict of Interest Rules: Identifying and managing conflicts of interest that may arise in the research process, including those related to investment banking relationships and trading activities.
• Trading Practices: Understanding the rules and regulations governing trading practices, including those related to insider trading and market manipulation.
• Supervisory Responsibilities: Understanding the supervisory responsibilities of research analysts and their supervisors, including the requirements for maintaining adequate policies and procedures.
• Communications with the Public: Understanding the rules and regulations governing communications with the public, including those related to research reports, public appearances, and social media.

It's important to note that the specific topics covered on the exams may vary slightly from year to year. Therefore, it's always best to refer to the official FINRA content outlines for the most up-to-date information. According to FINRA, the content outlines are the definitive guide to exam content.

Here is a sample topic weight breakdown for Series 86:

How to Create a Study Plan for the Series 86 & 87

Creating a structured study plan is paramount to success on the Series 86 & 87 exams. A well-designed plan will help you allocate your time effectively, cover all the necessary topics, and track your progress. Here's a step-by-step guide to creating an effective study plan:

1. Assess Your Current Knowledge: Before diving into the material, take a diagnostic practice exam for both the Series 86 and 87. This will help you identify your strengths and weaknesses, allowing you to focus your study efforts on areas where you need the most improvement.
2. Review the Official FINRA Content Outlines: Obtain the official content outlines for the Series 86 and 87 exams from the FINRA website. These outlines provide a detailed overview of the topics that will be tested on each exam. Use these outlines to create a comprehensive list of topics to cover in your study plan.
3. Allocate Study Time: Based on your diagnostic exam results and the content outlines, allocate study time to each topic. Spend more time on areas where you are weaker and less time on areas where you are already proficient. As a general guideline, aim to dedicate at least 80-100 hours of study time for the Series 86 and 40-50 hours for the Series 87.
4. Create a Study Schedule: Develop a detailed study schedule that outlines what you will study each day or week. Be realistic about how much time you can dedicate to studying each day and stick to your schedule as closely as possible. Break down your study sessions into smaller, manageable chunks to avoid burnout.
5. Choose Your Study Materials: Select high-quality study materials, such as textbooks, practice exams, and online courses. Ensure that your study materials are up-to-date and aligned with the official FINRA content outlines. Consider using a variety of study materials to cater to different learning styles.
6. Incorporate Practice Questions: Practice questions are essential for reinforcing your knowledge and developing your test-taking skills. Incorporate practice questions into your study schedule from the beginning and gradually increase the number of questions as you progress. Focus on understanding the rationale behind each answer, not just memorizing the correct answers.
7. Review and Revise: Regularly review the material you have already covered to ensure that you retain the information. Use flashcards, summaries, and other review techniques to reinforce your understanding. Revise your study plan as needed based on your progress and performance on practice exams.
8. Take Full-Length Practice Exams: As you approach the exam date, take several full-length practice exams under timed conditions. This will help you simulate the actual exam experience and identify any remaining areas of weakness. Analyze your performance on the practice exams and adjust your study plan accordingly.
9. Seek Help When Needed: Don't hesitate to seek help from instructors, tutors, or study groups if you are struggling with certain topics. Explaining concepts to others can also help solidify your understanding.
10. Stay Organized and Motivated: Keep your study materials organized and maintain a positive attitude throughout the study process. Celebrate your progress and reward yourself for achieving milestones. Remember that consistent effort and dedication are key to success on the Series 86 & 87 exams.

Remember that consistency and discipline are key to success. Stick to your study plan as closely as possible, and don't be afraid to adjust it as needed. With a well-designed study plan and diligent effort, you can increase your chances of passing the Series 86 & 87 exams.

Series 86 & 87 Difficulty Level and Pass Rates

The Series 86 & 87 exams are generally considered challenging, requiring a significant investment of time and effort to prepare adequately. The difficulty stems from the breadth of topics covered, the depth of knowledge required, and the application of concepts to real-world scenarios. While FINRA doesn't publicly release official pass rates for these specific exams, industry estimates suggest that the pass rates are typically in the range of 60-70% for the Series 86 and slightly higher, around 70-80%, for the Series 87. These figures highlight the importance of thorough preparation.

Several factors contribute to the difficulty of these exams:

• Comprehensive Content: The exams cover a wide range of topics, from financial statement analysis and valuation methodologies to economic indicators and regulatory requirements. Candidates must have a solid understanding of each area to succeed.
• Application of Knowledge: The questions are often scenario-based, requiring candidates to apply their knowledge to practical situations. This requires more than just memorization; it demands a deep understanding of the underlying concepts.
• Regulatory Complexity: The Series 87 exam focuses heavily on FINRA rules and SEC regulations, which can be complex and nuanced. Candidates must be familiar with the specific requirements and how they apply to different situations.
• Time Constraints: The exams are timed, and candidates must manage their time effectively to complete all the questions. This requires practice and familiarity with the exam format.

The pass rates can vary depending on the quality of the study materials used, the amount of time spent preparing, and the individual's prior knowledge and experience. Candidates who have a strong background in finance and accounting may find the exams less challenging than those who are new to the field. However, even experienced professionals need to dedicate sufficient time to studying to ensure they are familiar with all the topics covered on the exams.

Here's a hypothetical pass rate comparison chart:

To increase your chances of passing the Series 86 & 87 exams, it is essential to:

• Develop a comprehensive study plan.
• Use high-quality study materials.
• Practice with realistic practice questions.
• Seek help when needed.
• Manage your time effectively during the exams.

By taking these steps, you can improve your knowledge and skills and increase your confidence on exam day.

Career Paths After Passing the Series 86 & 87

Passing the Series 86 & 87 exams opens doors to a variety of career paths within the financial industry, primarily focused on research analysis. These licenses are essential for individuals seeking to work as qualified research analysts at broker-dealer firms. Here are some of the common career paths you can pursue after obtaining these licenses:

• Equity Research Analyst: This is the most direct and common career path for individuals with the Series 86 & 87 licenses. Equity research analysts are responsible for researching and evaluating publicly traded companies, industries, and markets. They analyze financial statements, assess competitive landscapes, and develop investment recommendations for clients. Equity research analysts typically specialize in a specific sector, such as technology, healthcare, or consumer goods.
• Research Associate: Research associates support senior research analysts by gathering data, building financial models, and preparing research reports. This is often an entry-level position that provides valuable experience and exposure to the research process. Research associates typically work under the guidance of a senior analyst and gradually take on more responsibilities as they gain experience.
• Investment Strategist: Investment strategists develop overall investment strategies for institutional clients, such as pension funds, endowments, and mutual funds. They analyze macroeconomic trends, market conditions, and asset allocation strategies to create portfolios that meet the specific needs and objectives of their clients. While the Series 86 & 87 are not always required for this role, the knowledge gained from these exams can be highly valuable.
• Portfolio Manager: Portfolio managers are responsible for managing investment portfolios on behalf of clients. They make investment decisions based on their research and analysis, aiming to achieve specific investment objectives, such as capital appreciation or income generation. Some portfolio management roles may require or benefit from the skills and knowledge validated by the Series 86 & 87.
• Independent Research Provider: Some individuals choose to work as independent research providers, offering their research and analysis services to institutional investors on a contract basis. This can provide greater flexibility and autonomy, but it also requires strong business development skills.
• Compliance Officer: With a deep understanding of the regulations governing research analysts, some individuals may transition into compliance roles, ensuring that their firm adheres to all applicable rules and regulations.

The specific career path you choose will depend on your interests, skills, and experience. However, the Series 86 & 87 licenses provide a solid foundation for a successful career in research analysis. These licenses demonstrate to employers that you have the necessary knowledge and skills to perform your duties ethically and competently.

Furthermore, continuous professional development is crucial for advancing your career in the financial industry. Consider pursuing additional certifications, such as the Chartered Financial Analyst (CFA) designation, to enhance your knowledge and skills and increase your career opportunities.

Salary Expectations with a Series 86 & 87 License

The salary expectations for individuals holding the Series 86 & 87 licenses can vary significantly based on factors such as experience, education, firm size, location, and specific job responsibilities. However, these licenses generally lead to competitive compensation packages within the financial industry. Here's a general overview of salary expectations for different roles:

• Research Associate: Entry-level research associate positions typically offer salaries in the range of $60,000 to $90,000 per year, depending on the factors mentioned above. Bonuses can also be a significant component of compensation, especially at larger firms.
• Equity Research Analyst: As you gain experience and move into an equity research analyst role, your salary potential increases substantially. Mid-level equity research analysts can earn salaries ranging from $100,000 to $250,000 per year, while senior analysts with a proven track record can earn significantly more, often exceeding $300,000 or even $500,000 per year. Bonuses are a significant part of total compensation, and can often equal or exceed base salary.
• Investment Strategist: The salary range for investment strategists can vary widely depending on their experience and the size of the firm. Entry-level positions may start around $80,000 to $120,000 per year, while experienced strategists can earn upwards of $250,000 or more.
• Portfolio Manager: Portfolio managers typically earn high salaries, especially those who manage large portfolios and generate strong returns. Entry-level positions may start around $70,000 - $100,000, but experienced portfolio managers can earn well into the six figures, often exceeding $500,000 or even $1 million per year.

It's important to note that these are just general estimates, and actual salaries may vary. Factors such as the performance of the firm and the individual's contributions can also impact compensation. In addition to base salary and bonuses, many firms also offer benefits packages that include health insurance, retirement plans, and other perks.

Here's a sample salary ranges chart:

The Series 86 & 87 licenses can significantly enhance your earning potential in the financial industry, especially in research-related roles. By demonstrating your knowledge and skills in research analysis and regulatory compliance, you can increase your value to employers and command a higher salary.

Top Study Tips for the Series 86 & 87

Preparing for the Series 86 & 87 exams requires a strategic approach and consistent effort. Here are some top study tips to help you maximize your chances of success:

• Start Early: Don't wait until the last minute to begin studying. Give yourself ample time to cover all the topics and practice questions. Aim for at least 80-100 hours of study time for the Series 86 and 40-50 hours for the Series 87.
• Create a Study Schedule: Develop a detailed study schedule that outlines what you will study each day or week. Be realistic about how much time you can dedicate to studying and stick to your schedule as closely as possible.
• Use High-Quality Study Materials: Select reputable study materials, such as textbooks, practice exams, and online courses. Ensure that your study materials are up-to-date and aligned with the official FINRA content outlines.
• Focus on Understanding, Not Memorization: The exams test your ability to apply your knowledge to real-world scenarios, so it's essential to understand the underlying concepts rather than simply memorizing facts.
• Practice, Practice, Practice: Practice questions are crucial for reinforcing your knowledge and developing your test-taking skills. Incorporate practice questions into your study schedule from the beginning and gradually increase the number of questions as you progress.
• Analyze Your Mistakes: Don't just focus on getting the right answers; pay attention to your mistakes and understand why you got them wrong. Review the underlying concepts and practice similar questions to avoid making the same mistakes again.
• Take Full-Length Practice Exams: As you approach the exam date, take several full-length practice exams under timed conditions. This will help you simulate the actual exam experience and identify any remaining areas of weakness.
• Manage Your Time Effectively: The exams are timed, so it's essential to manage your time effectively. Practice pacing yourself on practice exams and develop a strategy for tackling difficult questions.
• Stay Organized: Keep your study materials organized and maintain a positive attitude throughout the study process. Avoid distractions and create a dedicated study space where you can focus.
• Get Enough Rest: Make sure to get enough sleep in the days leading up to the exams. A well-rested mind is better able to focus and recall information.
• Simulate Exam Conditions: When taking practice exams, try to simulate the actual exam conditions as closely as possible. This includes using the same calculator, avoiding distractions, and adhering to the time limits.
• Know the Rules: Familiarize yourself with the FINRA rules and regulations regarding research analysis. This is particularly important for the Series 87 exam.
• Understand Financial Statements: A strong understanding of financial statement analysis is crucial for the Series 86 exam. Practice analyzing financial statements and calculating key ratios.
• Master Valuation Techniques: Be proficient in various valuation methodologies, such as discounted cash flow (DCF) analysis and relative valuation. Practice applying these techniques to different companies and industries.

By following these study tips, you can increase your knowledge, skills, and confidence and improve your chances of passing the Series 86 & 87 exams. Remember that consistent effort and dedication are key to success.

Frequently Asked Questions

Here are some frequently asked questions about the Series 86 & 87 exams:

1. What is the difference between the Series 86 and Series 87 exams?

   The Series 86 exam focuses on the practical application of research analysis and valuation methodologies. It assesses a candidate's ability to analyze financial statements, understand economic indicators, value securities, and make informed investment recommendations. The Series 87 exam, on the other hand, is more focused on the content outline and regulatory aspects of research analysis. It tests a candidate's knowledge of FINRA rules, SEC regulations, and other applicable laws pertaining to research reports, conflicts of interest, and trading practices.

2. How long are the Series 86 and Series 87 exams?

   The Series 86 exam is 4 hours (240 minutes) long and consists of 100 multiple-choice questions. The Series 87 exam is 1.5 hours (90 minutes) long and consists of 50 multiple-choice questions.

3. What is the passing score for the Series 86 and Series 87 exams?

   The passing score for both the Series 86 and Series 87 exams is 70%.

4. Can I use a calculator on the Series 86 and Series 87 exams?

   Yes, a basic calculator is provided on the computer for calculations during both exams. Candidates are not allowed to bring their own calculators.

5. What topics are covered on the Series 86 exam?

   The Series 86 exam covers topics such as financial statement analysis, valuation methodologies, economic and industry analysis, equity securities, fixed income securities (limited), technical analysis, quantitative analysis, research report writing, and regulatory and ethical considerations.

6. What topics are covered on the Series 87 exam?

   The Series 87 exam covers topics such as FINRA rules and regulations, SEC regulations, conflict of interest rules, trading practices, supervisory responsibilities, and communications with the public.

7. How should I prepare for the Series 86 and Series 87 exams?

   To prepare for the Series 86 and Series 87 exams, it is recommended to create a study plan, use high-quality study materials, practice with realistic practice questions, seek help when needed, and manage your time effectively during the exams. Also, familiarize yourself with FINRA's official content outlines.

8. How difficult are the Series 86 and Series 87 exams?

   The Series 86 and Series 87 exams are generally considered challenging, requiring a significant investment of time and effort to prepare adequately. The difficulty stems from the breadth of topics covered, the depth of knowledge required, and the application of concepts to real-world scenarios.

9. Do I need to be sponsored by a firm to take the Series 86 and Series 87 exams?

   Yes, you must be sponsored by a FINRA member firm to be eligible to take the Series 86 and Series 87 exams. The firm will need to file the appropriate registration forms on your behalf.

10. What happens if I fail the Series 86 or Series 87 exam?

    If you fail the Series 86 or Series 87 exam, you will need to wait 30 days before retaking the exam. If you fail the exam three times, you will need to wait 180 days before retaking it again.

11. Are the Series 86 and Series 87 licenses required for all research analysts?

    The Series 86 and Series 87 licenses are typically required for individuals who work as research analysts at broker-dealer firms and are responsible for preparing and publishing research reports on equity securities. The specific requirements may vary depending on the firm and the nature of the research being conducted.