Series 63 Pass Rate: Lower Than You’d Think

You won't find any official numbers from FINRA regarding the Series 63 pass rate. However, what we can tell you from years of experience tutoring the subject is that it's lower than most people expect. In this post, we address why the Series 63 Exam has the reputation of being an "easy" exam, but still trips so many people up.

 

Series 63 Pass Rate: Don't Underestimate the Exam

FINRA's Series 63 is the Uniform Securities Agent State Law Exam. In plain English, the exam is meant to test your knowledge on a range of rules and regulations. These rules and regulations pertain to registered representatives, the securities they deal with, and the firms at which they work.

The exam also deals with rules and regulations around Investment Advisers, and Investment Adviser representatives.

One key reason that students have issues with this exam is a simple psychological bias - some refer to it as "contrast bias."

For instance, by contrast the Series 7 Top-Off difficulty level is much higher than the Series 63. Thus, students often underestimate the Series 63 difficulty level given its shorter length and thinner text, and thus under-study.

Keep your study mode in high gear, even if the textbook is more narrow! To their own detriment, we have seen too many students take this exam lightly after passing the Series 7 Top-Off.

 

Where Should You Focus?

The low hanging fruit is a must for this exam.

Make sure you solidify concepts such as what is a "security", and what defines a "person."

Next, touch on some other important concepts that seem to confuse some people. For example, you should get clarity around the difference between an Investment Adviser (firm) and an Investment Adviser Representative (a person). While separating these two may seem easy enough, to put it into practice is not always obvious.

Also, make sure that you know why an IA would have to register in a state if the IA is State-Registered as opposed to Federally Covered. Five or six examples (or practice problems) from this section should help clarify this. There are also a few more obscure terms and definitions that are worth committing to memory. For example, memorize what are sometimes referred to as the brochure rules - Form ADV Part 1, and Form ADV Part 2. You'll be required to know the difference between them.

Lastly, make sure you have a conceptual, and deep-level understanding of the Uniform Securities Act (blue-sky laws). The more you understand the "USA", the better you will comprehend the detailed rules around it.

 

Double Negatives

While there is plenty more that we can discuss below, let's talk about how test questions can be asked. Specifically, in the form of double negatives.

There are many opportunities in the Series 63 material to quiz a student's ability to navigate double negatives. This is mostly due to the nature of the content. For example, after reading the text you may come to understand that an "exempt" security is one that does not need to register with the SEC or the state Administrator. Therefore, a non-exempt security is a security that does need to register.

It tends to confuse people that the "non-exempt" security requires registration, and the exempt does not. NASAA's test writers are well aware of the confusion created here so potential questions could include something like this:

"Which of the following securities does not represent a non-exempt security..."

What this is actually saying is:

"Which of the following securities does not have to register with the SEC..."

Cross-eyed yet? Practice these a lot!

Overall, this exam should not be as challenging as the SIE Exam, but don't take it lightly. Ultimately, aim for the mid 80% range in your scores like the other FINRA exams and you should be ok!

With that said, next we take a look at the components of the Series 63. What makes it easier than other exams, even though it may not sometimes feel like it!

Series 63 Exam Breakdown: Not the Hardest Exam, But Not Easy

At Professional Exam Tutoring, we obsess over customer experience. We want you to get the most out of your experience with our tutors, and ultimately to successfully make it through your FINRA exams. To do this we make sure to know the breakdown of each exam quite well.

The Series 63 Exam breakdown is a little different from the others.

First of all, the exam is administered by FINRA but actually a North American Securities Administrators Association (NASAA) exam.  Second, the exam is one of the shortest out there (more points below!).

Since this is usually the last of the regulatory exams that our students take on their way to becoming registered reps, it doesn't get much attention. That said, we have seen too many potential registered reps fail it.

Below we break down the mercurial outcomes from this exam.

 

Series 63 Breakdown

Let's first tackle the composition of the Series 63 exam (as mentioned on FINRA's website):

• The exam is multiple choice
• 60 questions
• 75 minutes (1 hour 15 minutes) in length
• Passing score is 43/60 (or 71.67%)
• No corequisite (you can take it in any order - E.g., before the SIE, or after)
• Cost = $135

You may notice that the Series 63 exam is slightly different than the SIE Exam and the Series 7 Top-Off exam in that there are no additional "experimental questions." The Series 63 exam has 60 questions, and only 60 questions. The exam does not typically take test-takers very long, and time is not usually an issue in most peoples' experience.

However, what we most consistently see as a sticking point is navigating the many double negatives (as mentioned above).

 

Law School Anyone?

When preparing for the Series 63 exam, you might feel more like you are studying for law school than finance.

The exam involves a lot of legalities and rules related to requirements when registering with a state or at the federal level as an investment advisor, and/or broker-dealer.

Deciphering the difference between a security that is exempt from registration vs non-exempt, or a transaction that is exempt from registration or non-exempt trips up a lot of people. To complicate things, practice questions include the customary curve ball words such as "except" and "not" to completely change the meaning of the questions.

If you get asked to identify all "non-exempt securities EXCEPT...", then the question is really asking you to identify the exempt security. In all "except" type of questions, we recommend that you instead look for the three out of four multiple choice answers that answer the question without the "except". You may find it easier to identify three out of four multiple choice answers, rather than the one that you need to identify.

Answers can often be more easily identified by elimination so try that first.

 

Where Should Your Practice Scores Be?

In short, aim as high as you can.

We have (recently) seen a student score in the low 80s on their Kaplan practice exams and miss the real exam by five points. Unfortunately it was evident that a little more studying was needed but their supervisor pressured them into taking the exam sooner than later so there was no room to push the date back.

This can happen. Be prepared to potentially be unprepared for the exam.

The best thing to do is to start studying as early as you can, and study as long as you can.

When it comes to your practice scores, aim for scores in the mid-80s at a minimum. If you can score in the high-80s and 90s, that is even better! This exam is not as difficult as the Series 7 Top-Off exam, but still requires quite a bit of work. Most of it will be memorization.

While you can probably do the large majority of the work yourself, if you need help then try a Series 63 tutor 🙂 We can help you find one!

 

Series 63's Hardest Questions: What Trips Students Up the Most

Like the FINRA exams, the Series 63's hardest questions are concentrated in certain sections, and consistently trip up students in the same places.

Below we discuss the top three most frequently asked questions with respect to the Series 63 exam. Here you will get to know where to focus your study time.

Series 63's Hardest Questions: State Registered vs Federally Covered

The Series 63 Exam is hard enough. We recommend that you hit the hardest sections quick so that you have time to learn them thoroughly.

As mentioned above, deciphering between state registered vs federally covered can be confusing. One specific area that gives our students a lot of problems on this topic is determining the difference between a state registered Investment Advisor and a federally covered one.

There are a few minor differences but the key points to remember here are:

• State registered advisors AND federally covered advisors BOTH have to register in the state in which they have an office....however...
• State registered advisors must register in a state where they have solicited over 5 retail (non-institutional) clients within 12 months. Federally covered advisors on the other hand, don't have to (unless they have a physical office in the state). Remember that the office location is the main determinant of whether or not the federally covered advisors need to register, not the number of clients in a state.

 

Series 63's Hardest Questions: Offer to Sell vs Gifts

We also get a lot of questions from students around offers to sell. Namely, what is a gift vs. what is an offer to sell?

What we tell students here is that if it sounds like the receiver of the security is getting something for free then it's a gift. In other words, if I gave you a non-assessable stock (e.g., a regular stock like Apple, Microsoft, or Google) then that is a gift.

However, if I give you warrants BUT only under the condition that you buy a bond from me first, then that is a sale with respect to the warrants.

Note that the free warrants are conditioned upon buying the bonds. In simple terms - these warrants aren't really a gift if you have to buy something else to get them.

Assessable stock is also a confusing concept for most people, so let's talk about that for a second.

Assessable stock is stock where the investor may be called to "pony up" more money if asked to. Imagine that you receive a cell phone as a gift. It's a nice thing to get, but if you want to use it then you will have to pay your monthly bill. Similar to the assessable stock, it is a gift that requires payments made over time. Since there are payments that will be required over time, the authorities don't consider this type of stock a gift.

 

Series 63's Hardest Questions: Exempt Transactions vs Exempt Securities

Lastly, one of the most important areas that we recommend you get straightened out when it comes to the Series 63 is exempt securities vs exempt transactions. To make sure that you give yourself a fighting chance when it comes to the Series 63, put some time into this section.

At the risk of sounding repetitive, remember that the word "exempt" often confuses people. When the curriculum refers to "exempt" they basically mean that the investor or the securities "don't have to" register with the state Administrator or SEC. This term is important enough to repeat because so many people confuse it.

The idea behind why an investor or issuer may prefer an "exempt" transaction or security is because registration can be an arduous, and expensive (e.g., legal fees) process.

The types of securities that are "exempt" typically involve a government (e.g., Munis, Treasuries, Canadian gov't, etc.), and/or financial institution. On the other hand, the transactions that are "exempt" usually include those that are between institutions.

Tip: If you see a question where three of the multiple choice answers include transactions via an institution, and one involving an individual, then that's a hint to what the answer might be. Remember Sesame Street's "one of these things just doesn't belong here"? 🙂

Overall, some topics cause test-takers more trouble than others. We highly recommend that you start mastering the above. The sooner you capitalize on the hard stuff, the sooner it will come easy. If you need help breaking these down you can always use a Series 63 tutor (or a Series 7 tutor, or a SIE Exam tutor), you know where to find us!

 

Core Series 63 Topics: To Exempt or Not-to-Exempt

Some of the core Series 63 topics are fairly obvious to identify after you've been studying for a while. But when you first start, they aren't so clear. Consequently, we get most of the same questions from student to student. Below we take a look at some of the most important Series 63 topics that have a high likelihood of showing up on your exam. You are going to want to take note of these. 😉

 

What Not to Not Focus On

As we've mentioned, the Series 63 certainly favors those that can navigate the double-negatives - "word-trickery" that makes this exam so challenging. Before we get into the core topics, there is a word with which you should get familiar.

Registration.

You will need to understand what "registration" means - it generally refers to filing mandatory paperwork with the state Administrator (or the SEC) in order to transact or sell a security in a state or within the United States. We've discussed the exceptions (exempt vs non-exempt) above, and we get into even more detail below.

Make sure you have those straight before going too deep into the practice questions otherwise it will be tough.

 

Rules for Investment Advisors vs. Broker-Dealers

For those of you that are well into your studying, the difference between broker-dealers and investment advisors may seem straight forward. Nevertheless, this is not an obvious distinction early on.

When it boils down to it, you will have to know the difference between the rules that govern broker-dealers (the firms) and their agents (registered reps that work at the firms). You will also need to know the difference between what rules apply to investment advisors (the firms) and their investment advisor representatives (people that work at the firm).

There are small differences between state requirements and federal requirements that you should also know.

For instance, registration requirements of a state registered investment advisor are different than for a federally covered investment advisor as outlined above. When doing business interstate, there are different rules that apply, as oppose to doing business intrastate. Similarly, what's required of investments advisor reps, is different than what is required for agents (of broker-dealers).

Make sure to study these carefully because many students blend the rules for each together.

 

Securities Registration

Another core topic with which you should get very familiar is securities registration. We should point out that there is much more to it than we explained. One core Series 63 topic within this part of the curriculum is the different type of securities registrations with the state that are possible.

Registration by Notification, Coordination, and Qualification are types of registration with the state that we consistently get asked about.

Spend some time getting to know these. Most people have issues here, but once you have a few key points for each, then you will be able to answer most questions.

For example, registration by qualification is one of the only of those mentioned where registration is effective when determined by the administrator. Registration by coordination involves registering with the SEC and "coordinating" registration with the state.

All in all, it's also a good idea to know what securities need to be registered, and which ones are exempt - there's that word again!

In a nutshell, there is plenty to study for this exam. Although you may be close to becoming a registered rep, don't let study fatigue start to set in! Stay focused as best you can and you'll do great! Good luck!