(Updated 7/26/23) Looking for SIE Exam hardest sections? Good question, and one that is easily answered after a once-through of your text.
My one consistent observation is that there are some sections that everyone finds difficult. If students were in my position (as a SIE Exam Tutor), they would realize that a few topics are worth the extra study time. Today, I’m going to highlight the main ones.
SIE Exam’s Hardest Sections: Options is Front and Center
Flip through the SIE study material, and you will find that the Options section is most confusing. Unsurprisingly, it is my number one most requested topic to tutor for the SIE exam by far. Although few financial services professionals end up using the knowledge gained from this section, it remains a significant portion of the SIE exam.
Furthermore, I encounter few students (in fact, I’ve had a grand total of zero) with any prior knowledge of Options.
What makes Options so confusing is that they are financial derivatives. Since they “derive” their value from another underlying asset (E.g., a stock), there is a two-step approach in learning key concepts. For example, if you are bullish on the price of a stock then you could sell a Put Option. Selling a put equity option gives you the “obligation to buy” a stock from the party that bought the Put Option from you in the first place.
Cross-eyed yet?
Investment Companies
Another of the SIE exam hardest sections includes that of the investment companies. The investment company section of the SIE exam is quite confusing for many of our students. One reason is the ambiguousness of investment companies themselves.
A simple way to think about these entities are as investment managers. Or, investment companies can be thought of as financial firms that specialize in putting together portfolios for people without the time or expertise to do so themselves.
What often turns such a simplistic explanation on its head for our students, are the words used in explaining the different types.
For instance, unit investment trusts (UIT) and face amount certificates are two types of investment companies. They have less name recognition than mutual funds (open-end funds), and get a little less attention. These type of products have a “set it and forget it” type of approach. An investment manager creates a portfolio at the outset, but thereafter never, or rarely manages it. What you see is what you get as an investor purchasing one of these products.
More discussed are open-end and closed-end funds. Importantly, open-end funds are synonymous with the term “ mutual fund”. Closed-end funds don’t really have a second name that gets bandied about on the exam. The through line between them is that they are both professionally managed. Meaning, some portfolio manager is constantly trying to optimize the portfolio by buying and selling securities within the mutual fund (reminder: a mutual fund is just a portfolio of securities, such as stocks and bonds).
Fixed Income Securities
Finally, while not as difficult as the Options section of the SIE Exam, fixed income securities present their own challenges. For one, many students have a hard time understanding that preferred stocks, and bonds are both categorized as “fixed income.” Although preferred stock is technically a form of equity, it behave much more like a bond than a stock.
Similar to bonds, preferred stock can be called and convertible (among other features). Although the Series 7 Top-Off exam goes much deeper when it comes to convertibles, a basic understanding can help for the SIE Exam. Focus on the main characteristics of fixed income securities. How do they move relative to interest rate movements? How do you calculate their dividend or interest payment? What is par value?
Annuities
Another of the SIE Exam hardest sections is that of Annuities. This might also come as an unsurprising revelation. Quite frankly few young people know how annuities work, because they don’t need them (or they have yet to think about retirement).
Annuities are a potential supplement to other types of retirement accounts such as IRAs, 401-Ks, etc. Annuities tend to confuse SIE test takers on a few fronts. First, the sub-accounts (E.g., Separate Account, General Account) can be fairly intangible and hard to conceptualize. Next, the tax implications can be somewhat similar to a Roth IRA account – often also confusing to students. Lastly, the tax deferred nature of annuities is frequently conflated with qualified (vs. non-qualified) accounts. Note that a tax deferred retirement account need not be a “qualified” (aka pre-tax) account.
When it comes to annuities, try and tackle it piece by piece. A lot of memory work is involved, so making a list of the characteristics of an annuity can be helpful.
Order Types
Ever heard of the acronym “SLoBS and BLiSS?” If not, you will at some point. When it comes to buy limit orders, sell stop orders, sell limit orders, and buy stop orders, this very helpful acronym will help a lot to get you through this section.
That said, the acronym is usually good at getting students 70% of the way there. You’ll need to make sure that you have a little bit deeper of an understanding beyond just the acronym to make sure that you understand how to answer the questions.
Specifically the section has an extra complication. It introduces buy stop-limit orders and sell stop-limit orders. These are effectively a combination of the individual orders mentioned above. One reason why this is one of the SIE exam hardest sections. FINRA seems to be keenly aware that this section is most difficult and therefore you want to prepare to see these difficult questions.
Investment Risks
Next, the investment risk section is not overly complicated, and mostly requires a familiarity with jargon.
Broad topics, such as systematic risk, and non-systematic risk should be understood. A simple trick we recommend is to think about systematic risk as the risk to the “system.” By this, we mean large macro events, such as pandemics, interest rate fluctuations, natural disasters, etc. Systematic risk is usually broad-based and will affect the whole market.
By contrast, non-systematic risk is specific to the investment you’re making. For example, if you are investing in New York City municipal bonds, the nonsystematic risk related to this investment would be a drop off in taxes collected by the city (making the city less able to pay off interest on its debts). Further, for an investment in a stock like Apple, a non-systematic risk would be that their phones lose popularity, and causes sales and profits to decline.
There are plenty of challenging topics on this exam, but one reassuring note is that none of them make up more than four or five questions at the most. This exam is fairly wide-ranging so if you cannot understand one section, don’t worry too much about it and move on to the next. However, don’t do that too many times.
Overall, there are many topics that can be confusing but these are the top three for which I get requests. The SIE Exam hardest sections, are not unique to any one student. These questions come up time and again from student after student.
So, if you feel like you’re having a hard time learning these sections, just know that you’re not the only one. Contact us if you need help, otherwise keep plugging away! It will eventually click.
Frequently Asked Questions (FAQ)
Question: What section of the SIE Exam are the absolute hardest?
While everyone has their own strengths and weaknesses, we can unequivocally say that the #1 most requested topic for tutoring is the Options section. There are some basic concepts to know with options that are not too difficult, however, the jargon is confusing. One of the most important tricks to remember with options is the “call up, put down” trick. This memory trick indicates which direction is “in the money“ for each type of option. Knowing little tricks like that can help a lot and make this section a little more digestible. In short, we would vote this as among the SIE Exam hardest sections.
Question: Which section is the highest weighted on the exam?
No individual section stands out from our experience, and that of our students as extremely heavily weighted. Other FINRA exams may be different. This introductory exam covers a broad range of topics. It’s not known for heavily weighting specific sections. However, that is not to say that you won’t see multiple questions on any one topic. For example, you may see one or two questions on understanding different types of yields (e.g., yield-to-call, yield-to-maturity, current yield, and nominal yield). Nevertheless, more than several questions on any one topic is highly unlikely.
Question: What is the best study material for the SIE Exam?
You will find no shortage of conflicting advice when it comes to study material for the SIE exam. We have no real dog in the fight, other than trying to do what is best for our students. On that front, we have consistently found that STC produces the best results, and most consistent. Their practice questions are a great middle ground when it comes to difficulty levels. Other providers appear too easy, while others still, are much too difficult. STC does a great job, straddling the line. Ultimately, we encourage you to read as much advice as you can, and come to your own conclusion. But our opinion on the matter still stands 🙂
Question: How do I know when I am ready to take the exam?
There is certainly an answer for this, but unfortunately there is no magic. Whether we are gauging your progress, or you’re doing it yourself, your practice scores are your best indication. Again, since we recommend STC practice material, we also recommend that you aim for scores in the mid 80% range for STC’s practice exams (NOT on their Greenlight exams – which are much more difficult). Understandably, not everyone who studies for the SIE exam will be able to get to this range by the time their employer makes them take the exam. That said, what we can also tell you is that the large majority of students we see score in the high 70% range still pass the exam. Other students in the low 80% range pass the exam with a greater likelihood. In fact, students in the low 80% range very rarely fail. Anything below the mid 70% range is often a roll of the dice.