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Free FINRA Series 7 (General Securities Representative) practice questions

Tap an answer to see if you are right, and why. 20 questions across 8 topics, mostly Communications with the public (4).

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Questions last updated October 20, 2026 · Original questions written from the FINRA Series 7 Content Outline (2021, checked 2026-10-20) and public FINRA, SEC, MSRB and IRC rules; not official or recalled FINRA items.

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125 scored items (+10 unscored) · 3 h 45 min · 72 scaled to pass (not a percentage) · SIE co-requisite.

125 scored items (+10 unscored) · 3 h 45 min · scaled 72 to pass

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  1. Communications with the public1 of 20

    A registered representative prepares a new retail communication about a mutual fund and plans to send it to 200 prospective customers. What must the firm generally do before the piece is used?

    The answer

    Answer: C. FINRA Rule 2210 treats a piece sent to more than 25 retail investors in 30 days as a retail communication. A registered principal must approve it before use, and the firm must keep records of the approval and the materials. Filing with FINRA is required only for certain communications, such as new products or those subject to specific filing requirements, not for every piece.

    Source: FINRA Rule 2210 — Communications with the Public

  2. Communications with the public2 of 20

    Which written communication is classified as correspondence under FINRA Rule 2210?

    The answer

    Answer: A. Correspondence is a written communication sent to 25 or fewer retail investors within any 30-calendar-day period. A message to 20 prospects fits that limit. A website post available to the public and a brochure sent to 500 customers are retail communications because they reach more than 25 retail investors. Press releases are generally treated as public communications rather than one-to-one correspondence.

    Source: FINRA Rule 2210(a)(2) — Correspondence definition

  3. Communications with the public3 of 20

    What is the purpose of the options disclosure document (ODD) that a customer receives?

    The answer

    Answer: D. The options disclosure document is a risk-disclosure document describing the characteristics and risks of standardized options. It does not recommend a specific trade, does not set a price, and does not report an issuer's financial results. FINRA Rule 2360 requires the firm to deliver the current ODD before the customer's first options transaction and to obtain the customer's acknowledgment of receipt.

    Source: FINRA Rule 2360 — Options; FINRA Rule 2220

  4. Communications with the public4 of 20

    A firm sponsors an educational seminar attended by 40 prospective retail clients during a 30-day period. Which supervisory step applies to the written materials?

    The answer

    Answer: B. Seminar materials are communications with the public under FINRA Rule 2210, so a registered principal must approve them before they are used. The firm must also keep records of the materials and the seminar. Whether the event is free or includes refreshments does not remove the approval requirement, and a sales assistant who is not a registered principal cannot approve the materials.

    Source: FINRA Rule 2210 — Communications with the Public

  5. Soliciting business5 of 20

    An underwriter is in the pre-filing period of a registered initial public offering. Which activity is prohibited?

    The answer

    Answer: B. During the pre-filing period, Section 5 of the Securities Act of 1933 prohibits offers and sales of the security, including soliciting indications of interest from customers. The underwriter may still investigate the issuer, prepare the registration statement, and negotiate the underwriting agreement. Public communications are tightly restricted until a registration statement is filed and the cooling-off period begins.

    Source: Securities Act of 1933 §5 — Prohibitions on offers and sales

  6. Soliciting business6 of 20

    What is the primary purpose of a preliminary prospectus during a registered offering?

    The answer

    Answer: A. A preliminary prospectus, often called a red herring, describes the issuer and the proposed offering during the cooling-off period. It lets the underwriter provide information and solicit indications of interest without making a final sale. It does not exempt the offering from registration, does not confirm a purchase, and cannot serve as the final prospectus after the registration statement becomes effective.

    Source: Securities Act of 1933 §5 — Prospectus requirements

  7. Soliciting business7 of 20

    Which statement describes a typical Regulation D Rule 506(b) private placement?

    The answer

    Answer: A. Rule 506(b) relies on the private-placement exemption and prohibits general solicitation or advertising. The issuer may sell to an unlimited number of accredited investors and a limited number of non-accredited purchasers who meet sophistication requirements. The securities are restricted, so buyers cannot resell them immediately without registration or an exemption, and no SEC qualification or final prospectus is required.

    Source: Securities Act of 1933 §4(a)(2) — Private placement exemption; Regulation D Rule 506(b)

  8. Account types8 of 20

    A grandparent opens a Uniform Transfers to Minors Act account for a grandchild. Which statement is correct?

    The answer

    Answer: D. A UTMA account holds an irrevocable gift for the benefit of a minor, and the assets legally belong to the minor. The custodian manages the account and may spend funds only for the minor's benefit. The donor cannot revoke the transfer or reclaim the assets, and the account is not a joint tenancy with the grandparent. Custodial misuse of the assets is a breach of fiduciary duty.

    Source: Uniform Transfers to Minors Act — irrevocable custodial gift

  9. Account types9 of 20

    Two unrelated customers open a joint account with right of survivorship. What happens when one owner dies?

    The answer

    Answer: D. In a joint tenancy with right of survivorship, the surviving owner automatically takes the deceased owner's share. The interest does not pass through the deceased owner's probate estate, and the account is not frozen for an executor merely because one owner died. The firm will require documentation such as a death certificate before updating the account registration.

    Source: Common law joint tenancy with right of survivorship — survivorship interest; FINRA Rule 4512

  10. Account types10 of 20

    Which feature is characteristic of a transfer on death (TOD) account?

    The answer

    Answer: A. A TOD registration lets the owner retain full control and ownership during life while naming beneficiaries who receive the assets at death. The transfer generally avoids probate and is not limited to a spouse. A valid beneficiary designation usually controls over a later will, and it does not transfer ownership immediately when the account is opened.

    Source: Uniform TOD Security Registration Act — transfer on death; FINRA Rule 4512

  11. Customer information11 of 20

    Under the customer identification program rules, what must a broker-dealer do when opening an account?

    The answer

    Answer: C. The customer identification program requires a broker-dealer to collect the customer's name, date of birth, address, and identification number, then verify identity within a reasonable time. The rule applies to all new accounts, not only margin accounts, and the firm may not wait indefinitely before collecting the required information. A credit report and tax return are not the standard CIP verification documents.

    Source: USA PATRIOT Act §326; 31 CFR 1023.220 — Customer identification program

  12. Customer information12 of 20

    FINRA Rule 2090 requires a member firm to exercise reasonable diligence to know which information about a customer?

    The answer

    Answer: C. Rule 2090, the know-your-customer rule, requires reasonable diligence to learn and retain the essential facts about each customer and the customer's account. The information supports suitability, supervision, and compliance with laws. It is not limited to employment data or commission calculations, and the firm should update the information when it changes. Medical history is not a general account-opening requirement.

    Source: FINRA Rule 2090 — Know Your Customer

  13. Investment profile and suitability13 of 20

    Which activity is part of the care obligation under Regulation Best Interest?

    The answer

    Answer: D. Reg BI's care obligation requires a representative to understand the potential risks, rewards, and costs of a recommendation and to have a reasonable basis to believe it is in the customer's best interest. The representative must consider reasonably available alternatives and the customer's investment profile. Disclosure alone does not satisfy the care obligation, and no one can guarantee that an investment will avoid losses.

    Source: Regulation Best Interest, 17 CFR 240.15l-1 — Care obligation

  14. Investment profile and suitability14 of 20

    A representative recommends a rapid series of trades that generate large commissions but leave the customer's goals unchanged. Which suitability concept is most directly implicated?

    The answer

    Answer: D. FINRA Rule 2111 recognizes three suitability obligations: reasonable-basis, customer-specific, and quantitative. Quantitative suitability addresses whether a series of recommended transactions is excessive in light of the customer's profile, even if each individual trade is suitable. The facts describe churning-like activity, so the concern is excessive trading rather than the product being unsuitable for everyone or the customer's age.

    Source: FINRA Rule 2111 — Suitability (quantitative suitability)

  15. Supervisory approvals15 of 20

    Before a customer's first listed options trade, which approval step is required?

    The answer

    Answer: C. FINRA Rule 2360 requires a registered principal to approve an options account before the first transaction. The firm must also deliver the current options disclosure document and obtain the customer's acknowledgment. Covered-call strategies still require an approved options account, and a registered representative who is not a principal cannot provide the required approval. Delivering the ODD after the trade is too late.

    Source: FINRA Rule 2360 — Options account approval

  16. Supervisory approvals16 of 20

    A customer wants to buy stock on margin for the first time. What does the firm generally require?

    The answer

    Answer: B. A margin account requires the firm's approval and a written margin agreement signed by the customer before margin transactions are permitted. The agreement typically includes the credit terms, the firm's right to liquidate collateral, and disclosures about margin risk. An oral request is insufficient, and obtaining the signed agreement after the first trade defeats the purpose of prior approval.

    Source: FINRA Rule 4210 — Margin requirements; Regulation T, 12 CFR 220

  17. Investment strategies and risk17 of 20

    How does diversification primarily affect a stock portfolio?

    The answer

    Answer: B. Diversification spreads investments across issuers, industries, and asset classes, which reduces company-specific and industry-specific risk. It cannot remove systematic market risk, because a broad market decline affects most securities at once. Diversification is a risk-management tool, not a guarantee of profit, and adding more stocks eventually produces diminishing reductions in unsystematic risk.

    Source: FINRA Rule 2111 — Suitability (risk and return)

  18. Investment strategies and risk18 of 20

    Which correlation between two assets provides the greatest diversification benefit?

    The answer

    Answer: D. Correlation measures how closely two assets move together. A negative correlation means one tends to rise when the other falls, which can reduce portfolio volatility more than holding assets that move in the same direction. A correlation of positive one offers no diversification benefit, and identical holdings do not diversify merely because the correlation is zero.

    Source: FINRA Rule 2111 — Suitability (portfolio risk)

  19. Investment strategies and risk19 of 20

    What is the main purpose of asset allocation?

    The answer

    Answer: C. Asset allocation divides a portfolio among broad asset classes such as stocks, bonds, and cash. The mix is chosen to balance the investor's return objectives, risk tolerance, time horizon, and liquidity needs. It is not a stock-picking forecast and cannot guarantee against losses. Allocation should be reviewed as the investor's circumstances and market conditions change.

    Source: FINRA Rule 2111 — Suitability (asset allocation)

  20. Packaged products20 of 20

    A mutual fund order arrives at 10:00 a.m. on a trading day. At what price is it normally filled?

    The answer

    Answer: B. Open-end mutual fund shares are priced using forward pricing. An order is filled at the next net asset value calculated after the fund receives it, not at a stale prior-day price. The fund computes NAV at least once each business day, typically at the market close. Investors do not negotiate the price with the fund, and any sales charge is applied according to the fund's prospectus.

    Source: Investment Company Act of 1940 §22(c); SEC Rule 22c-1 — forward pricing; FINRA Rule 2341

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