What Is the Series 27 Exam and License - SmartAsset

The Series 27 Financial and Operations Principal (FINOP) is a license that allows its holder to oversee the financial operations in one specific organization, namely a member firm brokerage. Also, the name refers to the exam the license holder must pass. We’ll explore the role the qualification plays in the regulatory structure of the investing and brokerage business. However, a financial advisor can help you learn more about brokerages and which ones might suit your investing objectives.

Which Professionals Need a Series 27 License?

The Series 27 FINOP license effectively is a regulatory seal of approval. Its design targets officers that keep a brokerage firm’s books. But more importantly, a FINOP holder is supposed to play by the industry’s rules and maintain the brokerage’s operational standards. In most cases, the brokerage’s chief financial officer or chief operations officer will have a FINOP qualification.

While Series 27 study covers the entire brokerage industry, there’s a distinct set of brokerages that actually can employ a FINOP licensee. Candidates must represent a brokerage-dealer with a minimum net capital requirement of $250,000 or a municipal securities broker with a minimum net capital requirement of $150,000. These can be self-clearing firms, which can execute their own trades, or market makers.

Anyone working at such a brokerage technically can apply for a license. However, that person must have backing from members of the brokerage with strong professional standing. Also, Series 27 candidates must work for or be affiliated with a firm that is part of a self regulatory agency. In most cases, that agency will be the same one that created and administers the Series 27 license and exam: the Financial Regulatory Authority, or FINRA.

FINRA and Series 27 Qualification

FINRA is a government-authorized, not-for-profit organization that sets rules for U.S. broker-dealers. Although not officially part of the government, FINRA works directly with the Securities Exchange Commission and has regulatory power. It oversees only the brokerage industry, but with over 600,000 brokerages operating in the country, that’s a lot of oversight. Beyond that, it sets industry standards around disclosure, product quality and ethical practice. What’s more, FINRA essentially serves as a watchdog for the investing public, a role that dates to the passage of the 1970 Securities Investor Protection Act.

Partly FINRA maintains industry standards through exams it provides for security professionals, who can’t operate in certain areas of business without FINRA qualification. In all, the agency has created over 30 exams for representatives, principals, administrators and rule-making bodies. Among these, Series 27 FINOP is a principal-level exam that tests for command of a brokerage’s fiduciary requirements.

There aren’t any specific educational or professional prerequisites for taking the Series 27 test. Individuals don’t need any other licenses, but a FINRA member firm must file an application on the test-taker’s behalf. The applicant must also provide fingerprints for background checks.

Qualifications for brokerages and candidates’ relationship with them are quite detailed and do include a long list of conditions. FINRA outlines these in a separate page for rules and registration information.

Series 27 Requirements and Curriculum

FINRA supplies a 24-page content outline anyone can download from its website. In addition to background information on the Series 27 license, it briefly describes the specific knowledge needed to pass the test.

Major topic headings in the content outline include financial reporting, operations, general securities industry regulations, preservation of books and records, customer protection, net capital and funding and cash management. There also are sub-categories, which include anti-money laundering statutes, margin account rules and many other topics.

The outline does not contain the actual information need to pass the test. Instead, students must become familiar with various FINRA and SEC rules, Generally Accepted Accounting Principles (GAAP), Financial Accounting Standards Board (FASB) statements and certain laws, such as the Securities and Exchange Act of 1934.

But not every Series 27 candidate has to take the DIY approach. There are a number of private education companies that offer test prep courses. The time commitment for mastering the material will vary depending on the candidate’s background and experience. However, 80 to 100 hours of studying is a reasonable estimate. FINRA’s test-taking fee is $120, which is modest when compared to many financial certifications that cost hundreds or thousands of dollars to earn.

The Series 27 Exam

Students have three hours and 45 minutes to complete the exam’s 145 multiple-choice questions. These break down into five categories that cover the major job functions of a FINOP, and they generally follow the course outline. Also, FINRA provides a questions-per category breakdown on its website that summarizes the body of knowledge a FINOP must master:

Financial reporting, 25 questions
Operations, general securities, industry regulations and preservation of books and records, 42 questions
Customer protection, 24 questions
Net capital, 41 questions
Funding and cash management, 13 questions

69 is the lowest passing score. The percentage is based on the number of correct answers, so there’s no penalty for guessing.

Comparable Certifications

As noted above, the Series 27 license applies only to a select class of broker dealers that exceed the financial threshold. That said, FINRA has a comparable license and exam for other brokerages, the Series 28. This is the Introducing Broker-Dealer Financial and Operations Principal Examination. As the name suggests, this exam covers much of the same body of knowledge a Series 27. However, Series 28 study includes fewer topics, and the exam has only 95 questions.

Bottom Line

The Series 27 license is part of the regulatory framework FINRA maintains for the securities brokerage industry. It’s designed for officers within brokerages of a certain size who will maintain good governance and customer protection practices. The course of study requires a considerable time commitment that may prove burdensome for busy professionals. That said, a principal with FINOP certification demonstrates they have met standards set by the industry’s primary regulator.

Tips

Series 27 license holders may be able to sell securities in addition to their financial officer duties. If so, they must have a FINRA license in that area of expertise as well. In fact, financial professionals may have several FINRA certifications. No certificate is a guarantee of competence, and investors must weigh many factors when choosing investing help. That said, FINRA’s credentials are positive indicators of quality.
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