Introduction to the Research Analyst Qualification
The FINRA Research Analyst Exam, commonly referred to as the Series 86/87, is a mandatory qualification for individuals who intend to work as equity research analysts at FINRA-member firms. This credential is unique in the financial regulatory landscape because it is split into two distinct components: a technical, quantitative exam (Series 86) and a regulatory, compliance-focused exam (Series 87). Together, they ensure that analysts possess both the mathematical proficiency to value securities and the ethical grounding to produce unbiased research.
Unlike more general exams like the Series 7, the Series 86/87 is highly specialized. It is designed for those who prepare 'research reports'-written communications that provide an analysis of equity securities and offer information sufficient to base an investment decision upon. Whether you are aiming for a career in sell-side research at a major investment bank or a boutique firm, mastering these exams is a non-negotiable step in your professional journey.
The Dual Structure: Series 86 vs. Series 87
The qualification process is bifurcated to address the two pillars of a research analyst's daily life: analysis and compliance. While many candidates view them as a single hurdle, they require very different mindsets and preparation strategies.
Series 86: The Analysis Exam
The Series 86 is the quantitative 'heavy lifter' of the pair. It consists of 100 scored questions and lasts 4.5 hours (270 minutes). This exam tests your ability to build financial models, interpret balance sheets, and apply valuation methodologies. It is often compared to the technical portions of the CFA Level I and II exams. Candidates must demonstrate proficiency in fundamental analysis, including the ability to project future earnings and cash flows.
Series 87: The Regulatory Exam
The Series 87 is shorter but no less critical. It consists of 50 scored questions and lasts 1 hour and 45 minutes (105 minutes). This exam focuses on the rules governing the conduct of research analysts. It covers Regulation AC (Analyst Certification), NASD Rule 2711, and NYSE Rule 472. The primary goal of the Series 87 is to prevent conflicts of interest between a firm's investment banking activities and its research department.
Eligibility and Prerequisites
Before you can sit for the Series 86 or 87, you must meet several regulatory requirements. FINRA does not allow individuals to 'self-sponsor' for these exams; you must be associated with and sponsored by a FINRA-member firm.
- The SIE Exam: The Securities Industry Essentials (SIE) exam is the introductory hurdle that tests general industry knowledge.
- The Series 7 Exam: You must pass the General Securities Representative Exam (Series 7) to be eligible for the Research Analyst qualification.
- Firm Sponsorship: Your firm must file a Form U4 on your behalf through the Central Registration Depository (CRD).
It is worth noting that some analysts may also hold the Series 79 (Investment Banking) if their role bridges the gap between research and capital markets, though the Series 7 remains the standard prerequisite for research.
The CFA and CMT Exemption Pathway
One of the most significant aspects of the Series 86/87 is the potential for an exemption. FINRA recognizes the rigor of certain professional designations and allows qualified candidates to bypass the Series 86 (the technical exam).
CFA Exemption
If you have passed Level I and Level II of the Chartered Financial Analyst (CFA) program and are in good standing, you can apply for an exemption from the Series 86. This is a massive advantage, as it allows you to focus solely on the 50-question Series 87 exam. Most sell-side firms actively encourage their analysts to pursue the CFA for this reason.
CMT Exemption
Similarly, candidates who have passed Level I and Level II of the Chartered Market Technician (CMT) program are eligible for a Series 86 exemption. This is particularly relevant for technical analysts who focus on price action and market trends rather than fundamental valuation.
Important Note: Even if you are exempt from Series 86, you must still pass the Series 87. There are no exemptions for the regulatory portion of the qualification.
Series 86 Content Breakdown: Analysis and Modeling
For those who do not have an exemption, the Series 86 is a deep dive into corporate finance. The exam is divided into two primary sections:
| Topic Area | Percentage of Exam | Number of Questions |
|---|---|---|
| Information and Data Collection | 10% | 10 |
| Analysis, Modeling, and Valuation | 90% | 90 |
The vast majority of the exam focuses on the technical application of financial theory. Candidates should be prepared to handle complex questions involving:
- Income Statement Analysis: Revenue recognition, COGS, EBITDA, and net income adjustments.
- Balance Sheet and Cash Flow: Understanding the link between the three financial statements and calculating Free Cash Flow to the Firm (FCFF) and Free Cash Flow to Equity (FCFE).
- Valuation Methodologies: Discounted Cash Flow (DCF) analysis, including WACC calculation, terminal value (Gordon Growth vs. Exit Multiple), and sensitivity analysis.
- Relative Valuation: P/E, EV/EBITDA, P/S, and P/B multiples, and knowing when to use each based on the industry.
- Industry-Specific Metrics: Such as Same-Store Sales for retail or Book-to-Bill ratios for semiconductors.
Series 87 Content Breakdown: Regulatory Compliance
The Series 87 is designed to ensure that research is objective and that analysts do not feel pressured by investment bankers to issue 'Buy' ratings to win deals. The content is divided into two sections:
| Topic Area | Percentage of Exam | Number of Questions |
|---|---|---|
| Preparation of Research Reports | 70% | 35 |
| Dissemination of Information | 30% | 15 |
Key concepts tested in the Series 87 include:
- Regulation AC: The requirement for analysts to certify that the views expressed in a report accurately reflect their personal opinions and to disclose whether they received compensation for those views.
- Quiet Periods: The timeframes during which a firm cannot publish research following an IPO or secondary offering.
- Conflicts of Interest: Rules prohibiting analysts from participating in 'pitches' for investment banking business or attending 'roadshows.'
- Disclosures: Mandatory disclosures regarding the firm's ownership of the subject company's securities or any investment banking fees received in the past 12 months.
- Personal Trading: Restrictions on analysts trading securities in the industries they cover.
Difficulty Analysis: What Makes it Challenging?
The difficulty of the Series 86/87 depends largely on your background. For a candidate with a strong accounting or finance degree, the Series 86 may feel like a review of university coursework, albeit under high pressure. However, the time limit (4.5 hours) is grueling, and the precision required for valuation questions leaves little room for error.
The Series 87 presents a different kind of difficulty. It is a 'law' exam. The questions are often wordy and designed to trip up candidates who haven't memorized the specific nuances of the rules. For example, knowing whether a quiet period is 10 days or 25 days, or understanding the exact definition of a 'public appearance,' is the difference between passing and failing.
Candidates often underestimate the Series 87 because it is shorter. This is a mistake. The 74% passing score is one of the highest in the FINRA catalog, meaning you can only miss 13 questions out of 50.
Study Timeline and Preparation Strategies
A successful study plan for the Series 86/87 should be phased. If you are taking both exams, it is generally recommended to tackle the Series 86 first, as it requires more 'muscle memory' for calculations.
The 8-Week Plan (Full Qualification)
- Weeks 1-4: Series 86 Focus. Spend this time mastering financial statement analysis and valuation. You should be able to calculate WACC and DCF in your sleep.
- Week 5: Series 86 Review. Take full-length practice exams. Focus on your speed; 2.7 minutes per question sounds like a lot, but complex modeling questions can eat up time quickly.
- Weeks 6-7: Series 87 Focus. Shift to the regulatory material. Create flashcards for quiet periods, disclosure requirements, and prohibited activities.
- Week 8: Final Review. Take combined practice sets. Use a tool like Treasury Conquer to identify weak spots in your regulatory knowledge.
The 3-Week Plan (Exempt Candidates)
If you are exempt from Series 86, you can condense your study into three weeks of intense focus on the Series 87. Spend the first two weeks reading the material and the final week doing as many practice questions as possible to internalize the 'FINRA-speak' used in the exam.
Official Materials and Exam Day Logistics
FINRA provides a content outline for both the Series 86 and Series 87. These outlines are the 'source of truth' and should be your first stop. They list every rule and technical concept that can be tested. However, the outlines do not provide the actual study content; for that, you will need third-party providers.
On exam day, you will take the test at a Prometric testing center. You are not allowed to bring your own calculator; the testing center will provide a basic financial calculator (often a TI-BA II Plus or similar) or an on-screen equivalent. For the Series 86, being comfortable with a physical financial calculator is a significant advantage.
Pro-Tip: Arrive 30 minutes early. The check-in process involves biometric scans and strict security protocols. Any stress at the start of the 4.5-hour Series 86 can derail your performance.
Career Outcomes and Professional Impact
Passing the Series 86/87 is the final step in becoming a 'Registered Research Analyst.' This title carries significant weight in the industry. It allows you to sign your name to research reports and speak to the media as a representative of your firm.
In terms of career progression, this qualification is essential for moving from a Junior Associate role to a Senior Analyst role. While buy-side analysts (at hedge funds or mutual funds) are not strictly required by FINRA to hold the Series 86/87, many buy-side firms value the credential as a mark of technical and ethical competence. Furthermore, if you ever transition from the buy-side back to the sell-side, having these exams out of the way is a major plus.
Evaluating Practice Tools: Is Treasury Conquer Worth It?
When preparing for a high-stakes exam like the Series 86/87, practice tools are a common investment. Treasury Conquer offers a suite of practice questions and review tools designed to simulate the exam environment.
Pros of Using Premium Practice Tools
- Pattern Recognition: The Series 87, in particular, uses very specific phrasing. Exposure to hundreds of practice questions helps you recognize the 'distractor' answers that FINRA commonly uses.
- Benchmarking: Practice exams provide a 'readiness score.' If you are consistently scoring above 80% on premium practice sets, you are likely ready for the real thing.
- Focused Review: Instead of re-reading a 500-page textbook, you can focus your time on the specific sub-topics where you are underperforming.
Cons and Limitations
It is important to remember that practice tools are a supplement, not a replacement for the core material. A practice tool cannot teach you the 'why' behind a DCF model as effectively as a comprehensive textbook or hands-on modeling experience. Additionally, while practice questions are designed to be similar to the real exam, they are not the actual questions. Relying on memorizing practice answers rather than understanding the underlying rules is a recipe for failure on exam day.
Common Pitfalls to Avoid
Many bright candidates fail the Series 86/87 not because they lack intelligence, but because they approach the exam incorrectly. Avoid these common mistakes:
- Overconfidence in the Series 87: Do not assume that because you are an ethical person, you will pass the ethics exam. The Series 87 is about specific rules, not general morality.
- Neglecting the Calculator: If you haven't used a financial calculator since college, start practicing with one on day one of your Series 86 prep. You don't want to be fumbling with the 'PV' and 'FV' buttons during the exam.
- Ignoring the Exemption: If you have a CFA, make sure your firm's compliance department actually files for the exemption. Don't waste 100 hours studying for an exam you don't have to take.
- Poor Time Management on Series 86: Some questions are intentionally long. If a modeling question is taking more than 5 minutes, mark it, move on, and come back to it later.
Conclusion and Next Steps
The FINRA Series 86/87 is a rigorous but rewarding challenge. It validates your technical skills as a financial modeler and your commitment to the integrity of the capital markets. By understanding the structure of the exams, leveraging exemptions where possible, and using a disciplined study approach, you can join the ranks of registered research analysts.
If you are just starting your journey, begin by confirming your prerequisites. Ensure your Series 7 is active and that your firm is ready to sponsor you. From there, dive into the content outlines and start your practice. You can begin with a free practice set to gauge your current knowledge level before committing to a full study schedule.