How to Pass the FINRA Series 22 Exam

Thinking about taking the Series 22 exam? Keep reading to learn what the Series 22 qualifies you to do, what the exam covers, and how you should prepare for it. Continue reading

What is the Series 22 exam?

The Series 22, also called the Direct Participation Programs Representative Exam, is a FINRA (Financial Industry Regulatory Authority) exam. FINRA is an independent, self-regulatory organization that creates and enforces rules for registered broker-dealer firms and their representatives. FINRA is also responsible for administering securities licensing exams, such as the Securities Industry Essentials (SIE) exam, Series 7 exam, Series 22 exam, and many more.

The Series 22 exam measures the knowledge of entry-level registered representatives to perform their duties as Direct Participation Programs Representatives. Taking the exam will help you understand your professional responsibilities, including the solicitation, purchase, and sale of limited partnerships, among other products.

What does the Series 22 permit me to do?

Did you know that the Series 22 exam is an easier path to becoming a direct participation program representative than the Series 7? The Series 22 is a shorter exam requiring less study time. Pass it and you’re on your way to being qualified to solicit and sell interests in direct participation programs (DPPs), including real estate, oil and gas, equipment leasing, BDCs, agricultural, and like-kind exchanges.

A DPP is FINRA term for a pass-through entity, such as a limited partnership or S-corp, whose shares indicate ownership, not of an operating company, but of certain physical assets of the company.  As a pass-through entity, DPPs can offer tax benefits to investors, but they are not suitable for all investors, and they are not liquid investments.

Other permitted activities and products with a Series 22 license include:

    • Limited partnerships
    • Limited liability companies
    • S corporations
Am I eligible to take the Series 22?

You must be employed and sponsored by a FINRA-member firm to take the Series 22 exam.

To obtain the Series 22 qualification, you must also pass the co-requisite Securities Industry Essentials (SIE) exam. Unlike the Series 22 exam, the SIE does not require you to be sponsored by a broker-dealer.

About the Exam

The Series 22 exam consists of 50 scored and five unscored multiple-choice questions. The five unscored questions are experimental questions and appear randomly.

Series 22 exam details

Note: Scores are rounded down to the next lowest whole number (e.g. 69.9% would be a final score of 69%–not a passing score for the Series 22 exam).

Topics Covered on the Exam

FINRA divides the questions on the Series 22 exam into four areas representing the four major job functions of a Direct Participation Programs Representative. FINRA updates its exam questions regularly to reflect the most current rules and regulations.

Series 22 exam topics

Solomon recommends that you print out the current version of the FINRA Series 22 Content Outline and use it in conjunction with the Solomon Series 22 Study Guide. The Content Outline is subject to change without notice, so make sure you have the most recent version.

Series 22 Example Questions

The Series 22 exam consists of multiple-choice questions, each with four options. You may see the following question structures. However, keep in mind that these sample questions don’t necessarily represent the difficulty level or subjects covered in the exam.

Closed Stem Format:

This item type asks a question and gives four possible answers to choose from.

Which of the following could potentially be a DPP? 

    1. A corporation 
    2. A REIT
    3. A company that has issued exchange-traded securities
    4. An investment company
Open Stem Format:

This kind of question has an incomplete sentence followed by four possible conclusions.

Owners of limited liability companies (LLCs) are considered:

    1. Shareholders
    2. Members
    3. Trustees
    4. Partners
“Except” (or “Not”) Format:

This type requires an answer that is incorrect or is an exception among the four answer choices.

Each of the following can cause an LP to be dissolved before the date specified in its Certificate of Limited Partnership, except:

    1. The only general partner dies.
    2. The LP declares bankruptcy.
    3. The only remaining general partners are substitute general partners.
    4. A majority of limited partners and all general partners agree to early dissolution.
  1.  
  1. Answers: 1. A   2. B   3. C  

For more Series 22 practice questions, try a free sample of Solomon Exam Prep’s Series 22 Exam Simulator. You’ll receive instant feedback on each question with a robust explanation of the correct answer.

Taking the Series 22 Exam

FINRA administers the Series 22 exam, and you must take it at a Prometric test center. The exam is given via computer. Before the exam, you’ll be able to watch a tutorial on how to take the exam.

Like all qualifying exams in the securities industry, the Series 22 is closed-book, and you’re not allowed to bring anything into the exam. The test center will provide you with any materials you need to complete the exam. For instance, the test center may provide a whiteboard with markers or scratch paper and a pencil, as well as a basic electronic calculator. The inspection and sign-in requirements at test centers are stringent, so plan to arrive at least 30 minutes before your scheduled test appointment.

Test-Taking Tips

When taking the exam, it helps to keep some test-taking strategies in mind. Try not to spend too long on one question—this may cause you to run out of time and not get to other questions you know. If you don’t know the answer to a question, guess at the answer and mark it for review . There’s no penalty for guessing, so it’s beneficial to answer every question.

After you’ve finished all the questions, you can return to any flagged questions. This strategy allows you to efficiently answer the ones you know. You might also learn something later in the exam that helps you answer an earlier question. Just remember to save enough time to return to the questions you didn’t answer. However, it’s not a good idea to simply skip all of the difficult questions with the plan to answer them later. You should make a serious effort to answer each question before moving on to the next one since your thoughts are often clearer earlier on during the exam.

How to Study for the Series 22 Exam

Follow Solomon Exam Prep’s proven study system:
    • Read and understand. Read the Solomon Study Guide, carefully. Many students read the Study Guide two or three times before taking the exam. 
    • Take chapter quizzes in the Exam Simulator. When you finish reading a chapter in the Study Guide, take 4–6 chapter quizzes in the Exam Simulator. Use these quizzes to give yourself practice and to find out what you need to study more. Make sure you read and understand the question rationales.
    • Take full practice exams in the Exam Simulator. When you’ve finished reading the entire Study Guide, review your handwritten notes once more. Finally, start taking full practice exams in the Exam Simulator. Aim to pass at least six full practice exams and try to get your average score to at least 80%. When you reach that point, you’re probably ready to sit for the Series 22 exam.
Use these effective study strategies:
    • Take handwritten notes. As you read the Study Guide, take handwritten notes and review your notes every day for 10–15 minutes. Studies show that taking handwritten notes in your own words and then reviewing them strengthens learning and memory.
    • Make flashcards. Making your own flashcards is another proven method to reinforce memory and strengthen learning.
    • Research. Research anything you don’t understand. Curiosity = learning. Students who take responsibility for their own learning by researching anything they don’t understand get a deeper understanding of the subject matter and are much more likely to pass. 
    • Become the teacher. Studies show that explaining what you’re learning greatly increases your understanding of the material. Ask someone in your life to listen and ask questions, or explain it out loud to yourself. Studies show this helps almost as much as explaining to an actual person (see Solomon’s blog post to learn more about this strategy!). 
Take advantage of Solomon’s supplemental tools and resources:
    • Use all the resources. The Series 22 Resources folder in your Solomon student account has helpful study tools, including detailed study schedules that you can print out. Or, use the online study schedule and check off tasks as you complete them.
    • Use Ask the Professor. If you have a content-related question, click the Ask the Professor button in your account dashboard and get personalized help from a Solomon professor
  • Good practices while studying:
    • Take regular breaks. Studies show that if you’re studying for an exam, taking regular walks in a park or natural setting significantly improves scores. Walks in urban areas or among people did not improve test scores.
    • Get enough sleep. Sleep consolidates learning into memory, studies show. Be good to yourself while you’re studying for the Series 22: exercise, eat well, and avoid activities that will hurt your ability to get a good night’s sleep.

You can pass the FINRA Series 22 exam! It just takes focus and determination. Solomon Exam Prep is here to support you on your path to becoming a Direct Participation Programs Representative.

Explore all Solomon Series 22 exam prep, including the Study Guide and Exam Simulator.

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What Are QIBs and Accredited Investors? What’s the Difference?

If you’re studying for securities licensing exams, such as the SIE or the Series 7, then you should understand the terms “accredited investor” and “QIB.” Continue reading

If you’ve been studying for the Series 7, 6, 14, 22, 24, 65, 79, or 82, or the Securities Industry Essentials (SIE), then you’ve had to learn about Regulation D private placements and Rule 144A sales. Regulation D private placements are securities offerings that are exempt from the normal SEC registration process and in many cases are sold only to “accredited investors” or limit the involvement of investors who are not accredited. Rule 144A sales are sales of unregistered securities to large institutional investors known as “qualified institutional buyers” or QIBs for short. 
 
You may have wondered about the difference between accredited investors and QIBs. On the surface, these may seem similar. Each refers to a category of investor with resources and/or knowledge above and beyond the average retail investor. So why not just have one standard for buyers under both Rule 144A and Regulation D? After all, the purpose of both Regulation D and Rule 144A is the same: to allow wealthier and more sophisticated investors easier access to investments that may be too risky for the average investor.  
 
To begin to answer this question, we have to start with the fact that wealth and sophistication fall on a spectrum. Investors aren’t neatly divided between small retail investors and huge financial institutions that move millions around without blinking an eye. 

Accredited Investors

You could think of accredited investors as a middle ground between these two extremes. Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement. There are many ways to qualify as an accredited investor but they all have one thing in common, which is that the SEC believes they indicate an ability to take on risks that regulators believe are unsuitable for most retail investors.

Accredited investors are investors whose financial status or investment knowledge may give them a greater ability to handle the risks inherent in a private placement.

All of the following are considered accredited investors:
  • Banks, broker-dealers, investment advisers, insurance companies, and investment companies
  • Corporations, trusts, partnerships, and LLCs with more than $5 million in assets
  • Most employee benefit plans with more than $5 million in assets
  • The issuer’s directors, executive officers, and general partners
  • If the issuer is a privately owned fund, (such as a hedge fund), a knowledgeable employee of the fund, which means an employee with at least 12 months’ experience working on the fund’s investment activities
  • Individuals with income of $200,000 in each of the last two years, or $300,000 in combination with a spouse or spousal equivalent such as a domestic partner
  • Individuals with a net worth more than $1 million, alone or with a spouse or spousal equivalent, not including primary residence
  • Individuals who hold any of these three designations in good standing:
    • Licensed General Securities Representative (Series 7)
    • Licensed Investment Adviser Representative (Series 65)
    • Licensed Private Securities Offerings Representative (Series 82)
  • Any firm where all owners are accredited investors (e.g., venture capital firms)
  • Any other entity with more than $5 million in investments that was not formed specifically to qualify as an accredited investor; the purpose of this category is to include entities that don’t neatly fit into any of the above categories, such as:
    • Native American tribes
    • Labor unions
    • Government bodies, including those of foreign governments
    • Investment funds created by government bodies
    • New types of business entities that may be introduced by new laws

An accredited investor that is not an individual—such as a business, governmental, or nonprofit entity—is sometimes called an institutional accredited investor (IAI).

Qualified Institutional Buyers

QIBs are a narrower group of large institutional investors. A QIB is a large institutional investor that owns at least $100 million worth of securities, not counting securities issued by its affiliates. For registered broker-dealers, the threshold is lower, just $10 million. A bank must also have a net worth of at least $25 million in order to be considered a QIB. 
 
If a firm has discretionary authority to invest securities owned by a QIB, those securities count toward whether the firm itself is considered a QIB. So if a broker-dealer has $9 million worth of securities in its own accounts, and holds $1 million worth of securities in a discretionary account belonging to a QIB, then the broker-dealer is itself a QIB.  

Common examples of QIBs include broker-dealers, insurance companies, investment companies, pension plans, and banks. However, any corporation, partnership, or LLC could qualify as a QIB. So can an IAI that owns at least $100 million in securities. Individuals can never be QIBs, regardless of their assets or financial sophistication.

Individuals can never be QIBs, regardless of their assets or financial sophistication.

Rule 144A allows QIBs to buy unregistered securities at any time, and freely trade these shares to other QIBs. In effect, QIBs can trade unregistered shares among themselves with almost the same ease as trading registered shares. Selling unregistered securities to anyone other than a QIB commonly requires a the seller to hold the securities for a period of up to 12 months. 

A QIB will virtually always meet the criteria to be an accredited investor, whereas an accredited investor may fall well short of QIB status.

Over time, other securities laws and regulations have made use of these two well-known categories. For example, in 2019 the SEC gave issuers more flexibility to test the waters with potential investors before deciding whether to go through with a public offering. When deciding which investors were sophisticated enough to receive test-the-waters communications, the SEC limited these communications to QIBs and institutional accredited investors. Additionally, references to institutional accredited investors have become more common, such as when the SEC revamped its rules around integration of offerings in March 2021.  
 
Know your QIBs from your accredited investors and be ready to pass your securities exam with Solomon Exam Prep.


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Curious about the Solomon Learning System? Watch the video overview!

Watch the latest Solomon Exam Prep video for a complete look at the Solomon learning system and what it offers students and firms. Continue reading

Solomon Exam Prep has helped thousands of financial professionals pass their FINRA, NASAA, MSRB, and NFA licensing exams. Watch the video for a complete look at the Solomon learning system and what it offers students and firms.

To explore Solomon Exam Prep study materials for 21 different securities licensing exams, including the SIE and the Series 3, 6, 7, 14, 22, 24, 26, 27, 28, 50, 51, 52, 53, 54, 63, 65, 66, 79, 82, and 99, visit the Solomon website.

January Study Question of the Month

This month’s study question from the Solomon Online Exam Simulator question database is now available. Continue reading

This month’s study question from the Solomon Online Exam Simulator question database is now available.

***Comment below or submit your answer to info@solomonexamprep.com to be entered to win a $20 Starbucks gift card.***

This question is relevant to the SIE, Series 6, 7, 22, 24, and 82 exams.

Question:

Which of the following people would be considered a specified adult?

Answer Choices:

A. A 16 year old with autism

B. A 30 year old

C. A 60 year old with a heart condition

D. An 18 year old in a coma

Correct Answer: D

Explanation: A specified adult is a natural person age 65 and older or a natural person age 18 and older who the member firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests.

SEC Announces Major Revisions to Registration Exemptions Aimed at “Harmonizing” Regulation A Offerings, Regulation D Private Placements, and Crowdfunding

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” Continue reading

On November 2, the SEC announced a collection of rule changes meant to, in the announcement’s words, “harmonize, simplify, and improve” its “overly complex exempt offering framework.” The changes affect Regulation A, which governs small public offerings; Regulation D, which governs private placements; and Regulation CF, which governs crowdfunding. This system of exemptions allows various small offerings to avoid the normal registration process required by the Securities Act.  
 
The rule changes should provide a clearer choice as to which exemption is most appropriate to an issuer, based on how much the issuer needs to raise and other factors.
 
The changes also seek to clarify how issuers can avoid “integration” of exempt offerings. Integration is the risk that exempt offerings will be considered a single offering by the SEC, because the offerings are too similar.
 
Highlights of the changes include:
 
  • If two exempt offerings are conducted more than 30 days apart, they are almost always protected from integration.
  • An issuer can “test the waters” with potential investors before deciding which exemption it will use for an offering. Test-the-waters communications solicit interest in a potential offering before the issuer has filed anything with the SEC. Previously, an issuer could only test the waters after deciding that its potential offering would take place under Regulation A.
  • Caps on the amount that may be raised through these exemptions have been increased:
    • Crowdfunding: from $1.07 million to $5 million
    • Regulation A, Tier 2: from $50 million to $75 million 
    • Regulation D, Rule 504: from $5 million to $10 million
  • Make “bad actor” exclusions more consistent across different exemptions.
The rule changes will take effect early next year. Until the changes take effect, securities exam questions will continue to be based on the old rules. FINRA Exams affected by these rule changes include the SIE, Series 6, Series 7, Series 14, Series 22, Series 24, Series 65, Series 66, Series 79, and Series 82.

The FINRA Series 22: Basic Exam Preparation

Get answers to some of your burning Series 22 questions from Jeremy Solomon, Solomon Exam Prep owner and president, plus test day tips! Continue reading

Did you know that the FINRA Series 22 exam is a much easier path to becoming a direct participation program representative than the Series 7?  A shorter exam requiring less study time, and you’re on your way to being qualified to solicit and sell interests in DPPs, including real estate, oil and gas, equipment leasing, BDCs, agricultural, like-kind exchanges, etc.

Click on the video link above and get answers to some of your burning Series 22 questions from Jeremy Solomon, Solomon Exam Prep owner and president, plus test day tips!