Monday, October 8, 2012

What Does the Series 7 Mean by Suitability?

When the Series 7 Exam asks 70 questions on "suitability," what does that actually mean? Well, as you would assume, it covers recommendations to customers that you will make through short-story questions. But, the suitability questions also expect you to know about economic factors, industry news sources, and product features/benefits/risks/costs. This is from the Series 7 Exam outline:

TASKS:
T4.1 Obtains information regarding current domestic and global market events, economic/financial news, industry sectors, and the status of markets and securities from various appropriate sources to assess how this information may impact the markets, issuers and customers’ accounts
T4.2 Communicates relevant market, investment and research data to customers
T4.3 Makes suitable investment recommendations
T4.4 Provides appropriate disclosures concerning products, risks, services, costs and fees
T4.5 Provides customers with information on investment strategies and explains how the risks and rewards of a particular investment or strategy relate to the customer’s financial needs and investment objectives

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  1. B WalksOctober 15, 2012 at 10:48 AM

    The term "suitability" is really a broad term that encompasses the risks and features of investment vehicles and how they fit with various investor profiles, including their tax status, retirement goals, etc. Knowing about securities is important, as is knowing the features of various account types--UTMA, 529, trust, estate, etc. Don't worry about the precise maximum annual contributions to a retirement or education account, but do know the tax treatment of contributions and withdrawals and various parameters/features for each account. The 529 and the CESA, for example, have similarities and differences--know them. And, keep moving.

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