I remember a situation I heard about from one brokerage firm, in which they sponsored a new broker for the Series 7 after he aced his online pretest. Then, when he went to take the real test, he failed miserably. When the firm questioned why he did so well on the pretest, but failed the real one, he broke down and told the truth. The answers to the test were posted on a web page online and he had copied them all. Needless to say, the firm trashed the test and started sending candidates through much more expensive monitored pretests.
Brokerage firms face a unique issue when they’re trying to hire someone new. They can either try and headhunt an experienced—and expensive—Series 7 licensed employee away from another firm, or they can hire a much cheaper newbie and sponsor them for the license. While the second option is more cost-effective, it’s also a risk. The firm must sponsor the employee to take the test and if they fail, the financial losses are inevitable. A lot of firms conduct Series 7 pretests as a means of gauging the knowledge of applicants and hiring the ones that do the best on those tests, assuming that they will be most successful on the actual exam down the road. The issue is that these pretests can be manipulated. However, there might be a way to keep costs down while maintaining the integrity of the pretest, and it all centers around using unique technology like Remote Risk Assessment (RRA).
The Catch 22 of Hiring a Broker
If your firm needs a new broker, you have two choices. You can hire a headhunter who will locate a Series 7 licensed broker who’s already employed with another firm and try to hire him away. With this option, you get the guarantee that the broker can come in and start trading right away. You also get a guarantee that the entire process is going to cost at least six figures. It isn’t cheap to hire an experienced broker.
The alternative option is to hire a broker candidate and sponsor that candidate for the Series 7. While this might be a more cost-effective solution, it comes with no guarantees. Until that broker is licensed, they can’t trade securities, mutual funds, options, or variable contracts like variable annuities. While you might send the candidate in for the Series 7 exam as soon as possible, that’s no guarantee of success. About one-third of people who take the exam fail it the first time. When they fail, they must wait 30 days to take the exam again and if they fail it three times, there’s a six-month waiting period before they can take it again. If you choose to sponsor the wrong candidate, you could be waiting up to nine months before you can get any work out of them. While the process of hiring an entry level broker might be cheaper, it’s also incredibly risky.
To limit this risk, some firms have candidates take pretests. Usually, this is done the most cost effective way, by having the candidate take the test at home on an internet site. The issue with cost-effective internet-based tests is that it’s almost impossible to maintain their integrity. Candidates can look for answers online or even just have someone take the test for them.
As an alternative, you could pay for the candidate to take the test at a proctored site, but this is expensive and time-consuming. You have to pay for the test and wait until the candidate schedules and completes it before moving on in the hiring process. This delays hiring, especially if you paid for a pretest that the candidate failed. At that point, you have to start all over again.
It’s clear that the most time- and cost-effective way to do the pretest is to have it done from an online based system. But then there’s the issue of ensuring the results are accurate and not a result of outside help. To protect the integrity of the test, you can leverage RRA as a verification step.
How RRA Keeps Pretests Credible
Remote Risk Assessment is a way to help determine the integrity—and minimize the deception risk—of an individual without having to conduct in-person interviews or use other expensive means of verification. This is a voice-based technology which uses biometric indicators and proprietary signal analysis to assess the level of risk of the person being interviewed. It’s also easy to implement in conjunction with a pretest for a candidate for Series 7 sponsorship.
Here’s how it works. You would use whatever pretest program you wanted, with one important factor. Prior to taking the test, the candidate would sign something, either electronically or in person, giving very specific rules for how the test will be taken. i.e. no use of outside resources, time limits, etc. Once they acknowledge that they understand those rules, they are forwarded to the test itself.
After the test is completed and submitted, they will be directed to an RRA call center. There, they participate in a short verification interview taking less than ten minutes, during which they answer questions to ensure they adhered to the rules and took the test themselves. So, they might be asked, “Did you use any outside resources while taking the test?” They would answer no, and the system would grade that answer on a sliding scale from low to high risk. The high-risk candidate will have answered “no” to the question of using outside resources during the test. There is no escaping jeopardy and consequence when it comes to assessing risk.
This creates a more cost-effective way to manage the pretest process and allows you to find the best candidates to sponsor for the Series 7 exam. Ultimately, you are also able to save by hiring more entry-level brokers that you can train in accordance with your own firm’s policies and procedures.
AC Global Risk offers this verification process for a wide range of clients, especially those who are seeking to maintain the credibility of their pretesting process while not delaying hiring unnecessarily. We can offer this service anywhere, in any language, making it ideal for firms with international offices. For more information on our RRA technology, contact us today.