Try 10 focused Series 87 questions on Research Reports, with explanations, then continue with the full Securities Prep practice test.
Series 87 Research Reports questions help you isolate one part of the FINRA outline before returning to a mixed practice test. The questions below are original Securities Prep practice items aligned to this topic and are not copied from any exam sponsor.
| Item | Detail |
|---|---|
| Exam | FINRA Series 87 |
| Official topic | Function 4 — Preparation of Research Reports |
| Blueprint weighting | 72% |
| Questions on this page | 10 |
When a broker-dealer distributes an issuer-paid research report (research for which the subject company directly or indirectly pays), which disclosure is most directly required to address the conflict of interest?
Best answer: C
Explanation: Issuer payment is a material conflict that must be clearly and prominently disclosed in the report.
Issuer-paid research presents a clear conflict because the subject company funds the research. The core control is prominent disclosure that the issuer paid for the research and the nature of that compensation arrangement so recipients can evaluate potential bias.
Issuer-paid research is research coverage that is funded by the subject issuer (directly or indirectly), which creates a material conflict of interest because the issuer has an incentive to influence tone, coverage, or conclusions. A key independence control is transparency: the research communication should clearly and prominently disclose that the issuer paid for the research and describe the nature of the arrangement (so the audience can assess potential bias). This obligation applies regardless of whether the content is produced by an affiliate or an unaffiliated third party and regardless of whether the audience is institutional or retail. Disclosing only ordinary investment banking relationships, or limiting disclosure to certain recipients, does not address the issuer-paid compensation conflict itself.
As part of a pre-publication checklist, Compliance flags a draft research report because it does not include a summary showing (1) the definitions of the firm’s rating categories and (2) the percentage of all company ratings issued by the firm that fall into each category.
Which required disclosure does this checklist item address?
Best answer: A
Explanation: Research reports must describe the rating categories used and disclose how the firm’s ratings are distributed across covered companies.
The checklist item describes the requirement to explain the firm’s rating categories and to provide the distribution of the firm’s ratings (e.g., buy/hold/sell) across covered companies. This disclosure helps readers interpret the meaning of the rating and whether ratings are skewed toward favorable recommendations.
A common “required disclosures” checklist for research reports includes items that help investors interpret the report’s recommendation framework. One of those items is the firm’s ratings system disclosure, which typically includes the definitions of each rating category and a summary of how the firm’s ratings are distributed across the universe of covered companies (often shown as percentages).
This is distinct from other required elements that may also appear in a report, such as historical price/ratings charts, analyst certifications, and conflict disclosures (e.g., ownership or market making). The deciding clue here is the combination of rating definitions plus a firm-wide ratings distribution summary.
A research analyst is drafting an “Earnings Estimate Update” research report after revising the firm’s projected next-year EPS for an issuer from $1.20 to $0.90. The report will be distributed to clients.
Which draft approach is INCORRECT when announcing the earnings change?
Best answer: A
Explanation: An earnings revision should be accompanied by the key assumptions and drivers behind the change, not just the new number.
When a research report announces a change to projected earnings, it should explain the basis for the revision at a high level. That typically includes the major drivers and the key assumptions that changed (or are most important) so readers can understand and evaluate the forecast. Withholding the assumptions while publishing the revised EPS is not an appropriate research-report approach.
An earnings estimate update is a research report that communicates a material change in the analyst’s projections. To make the revision fair, balanced, and useful, the analyst should disclose, at a high level, what changed in the outlook and the key assumptions that support the new EPS (for example, revenue growth/units, margins, costs, FX, tax rate, or other model drivers relevant to the issuer). The report should also provide enough context—such as the prior estimate and the main reasons for the change—so clients can assess the credibility of the revision. Simply publishing a new EPS number while withholding the underlying assumptions deprives readers of the basis for the recommendation/forecast and undermines the research report’s analytical support.
Key takeaway: communicate both the revised projection and the principal assumptions/drivers behind it.
A research analyst has finalized a research report initiating coverage on ABC Corp with a Buy rating and a $42 price target. The required disclosure template has been completed and the report has passed the firm’s restricted-list check. The analyst now wants to email a one-page “research highlight” excerpt (including the rating and price target) to the sales force and a list of institutional clients.
Under the firm’s policies, research reports and research-related communications that include a rating or price target must receive pre-publication approvals and include the analyst’s Regulation AC-style certification.
What is the best next step before sending the email?
Best answer: C
Explanation: A research report (or excerpt with a rating/target) cannot be disseminated until it has supervisory approval and the required analyst certification.
Because the excerpt includes a rating and price target, it is treated like research for pre-publication control purposes. The firm’s process requires supervisory review/approval and the analyst’s certification before dissemination. Sending to sales or clients before those steps would be premature distribution.
The core control tested here is the pre-publication approval sequence for research and research-related communications that convey a recommendation, rating, or price target. Even if disclosures are populated and the restricted-list check is complete, the material cannot be sent externally (or broadly internally for distribution) until it is approved through the firm’s research supervisory process and accompanied by the analyst’s required certification (Regulation AC concept) that the views are the analyst’s own and not improperly influenced.
Best practice sequencing is:
A “draft” legend or issuer review does not replace internal approvals, and dissemination cannot occur first with approvals added later.
A member firm requires that every equity research report be approved by (1) a research supervisor (research principal) for content and (2) Compliance for required disclosures before external distribution. Due to a system outage, an analyst emails a research report to 40 institutional clients using an old distribution list.
Exhibit: Approval log (captured after the email)
Report: ABC Corp Update
Research supervisor approval: PENDING
Compliance disclosure review: PENDING
Reg AC analyst certification: ON FILE
What is the most likely outcome of this control failure?
Best answer: A
Explanation: Distributing research without required supervisory and compliance pre-approval typically triggers escalation, remediation (pull/correct), and regulatory exposure.
The report was externally disseminated without the required pre-distribution approvals from the research supervisor and Compliance. That breakdown typically requires immediate escalation to those functions, an assessment of whether the communication was misleading or noncompliant, and remedial steps such as withdrawal and reissuance with proper approvals. It also creates potential regulatory exposure because the firm’s supervisory controls failed.
In a research report approval workflow, the research supervisor (research principal/supervisory analyst) is responsible for supervising and approving the research content and ensuring the report meets firm standards, while Compliance reviews for policy and regulatory requirements such as required disclosures and conflicts. Research management may set processes and oversee operations, but it generally does not substitute for required supervisory or compliance approvals.
If research is disseminated externally before the required approvals, the firm’s most likely consequence is to:
A stored analyst certification does not cure missing supervisory and compliance pre-approval for that specific distributed report.
A broker-dealer’s equity research reports must include a price chart showing 3 years of daily closing prices and must annotate the chart with the date of each rating change and each price target established or changed that occurred during the chart period.
A report on ABC is dated February 15, 2026. ABC rating/price target actions were:
How many distinct action dates must be annotated on the required price chart?
Best answer: B
Explanation: The 3-year chart runs from February 15, 2023 through February 15, 2026, so all listed actions except January 20, 2023 must be annotated.
The required chart period is the 3-year window ending on the report date. Only rating changes and price target actions that occur within that window must be marked on the chart. Here, the window starts February 15, 2023, so the January 20, 2023 initiation falls outside and is not annotated.
A required research-report price chart has two key components: (1) the specified time window of price history and (2) clear markers for relevant research actions (rating changes and price target initiations/changes) that occurred within that window.
For a report dated February 15, 2026, a 3-year chart covers February 15, 2023 to February 15, 2026. Count the action dates on or after February 15, 2023:
That is 4 dates to annotate; the January 20, 2023 initiation is outside the 3-year window and is not included. The key takeaway is to anchor the count to the chart window, then include each rating/target action date within it.
A broker-dealer is preparing a research report on Redwood Solar, Inc. The report lists two registered research analysts on the cover (A. Chen and M. Rivera) and includes a single rating and $42 price target that were jointly determined. Each analyst wrote and edited different sections, but both sections support the rating/price target.
Firm policy states: “Each research analyst whose name appears on a research report must provide an analyst certification that is attributable to that analyst and covers the views expressed in the report.”
Which approach best aligns with this policy and durable research standards?
Best answer: D
Explanation: Both named analysts must provide their own attributable certifications covering the views expressed in the report.
Because both analysts are named on the report and jointly determined the rating/price target, each must provide an attributable certification covering the views expressed in the report. This ties the certification to the covered content and prevents one person (or the firm) from certifying for another analyst’s views. It also supports research independence and clear accountability.
Analyst certifications are intended to be personally attributable and linked to the research views presented (e.g., the rating, price target, and supporting rationale). When a report names multiple analysts and their work contributes to the expressed views, each named analyst should provide their own certification (typically via separate signature/e-attestation lines) covering the views in the report.
This approach ensures:
Having only one analyst, a manager, or a generic firm statement “certify” breaks the link between the specific analyst(s) and the expressed views.
A broker-dealer creates a one-page “Research Highlights” handout for its sales force and certain clients that summarizes an analyst’s published report (rating, price target, and selected bullet points). Which statement is most accurate?
Best answer: B
Explanation: Summaries and excerpts of research used in marketing must not cherry-pick or omit material negative information that would make the communication misleading.
Research summaries and excerpts used as sales tools are communications that must be fair and balanced and not misleading. They must accurately reflect the underlying report’s overall message and cannot selectively present only favorable facts or omit material risks or qualifiers. Labeling something a “summary” does not reduce the obligation to avoid misleading omissions.
A “Research Highlights” handout is still a communication that presents research content, so it must meet fair-and-balanced standards. That means it should reflect the overall conclusions and key qualifiers of the underlying research and cannot cherry-pick only positive bullets, ratings, or a price target while leaving out material caveats, risks, or contrary facts that are necessary to keep the summary from being misleading.
As a practical matter, firms typically control this by ensuring the summary is consistent with the full report, includes any material limitations/qualifiers needed for balance, and provides appropriate conflict/disclosure information or a clear, prominent way for the reader to access it.
The key takeaway is that a shortened format does not permit selective or promotional presentation of research.
A research analyst finalizes a research report with a new rating and price target. The report includes the firm’s required disclosures and is posted to the firm’s research portal for all clients at the same time.
Under the firm’s WSPs, a registered principal must approve research reports and the firm must retain an audit trail of the approval and supporting documentation (e.g., drafts/changes and review notes). In this case, the analyst received only a verbal “looks good” from the principal in a hallway conversation, then immediately posted the report and deleted prior drafts from the shared drive.
Which is the primary compliance red flag?
Best answer: B
Explanation: Research must not be disseminated without retaining evidence of required principal approval and supporting review documentation.
The key issue is recordkeeping around research approval and support. When a firm’s procedures require principal approval and retention of supporting documentation, a verbal approval with no retained audit trail (and deletion of drafts) creates a supervisory review and books-and-records failure risk even if dissemination is otherwise even and disclosures are present.
Research report controls typically require more than getting “permission” to publish—they require evidence that the required review occurred and that the firm can reconstruct what was reviewed. Here, the firm’s WSPs specifically require documented principal approval and retention of supporting materials. Posting the report immediately after an undocumented verbal approval, and deleting drafts, undermines the required audit trail and impairs the firm’s ability to demonstrate supervisory review.
At a high level, firms should be able to retain:
Even with proper disclosures and simultaneous portal posting, missing (and destroying) approval/support records is the primary red flag.
You are finalizing the “Price Target” section for a research report and need a plain-language explanation for a price target change.
Exhibit: Analyst model update notes (for ABC Corp.)
Which draft sentence is best supported by the exhibit and most appropriate to include in the report?
Best answer: D
Explanation: It accurately reflects the multiple cut, higher WACC, and delayed FDA catalyst shown in the exhibit.
The exhibit shows the price target cut is driven by valuation input changes (a lower EV/EBITDA multiple and a higher WACC) and a delayed catalyst (FDA clearance shifting later). A compliant plain-language explanation should tie the revised target directly to those disclosed modeling inputs and catalyst timing, without adding unsupported forecast or rating changes.
A strong price target change explanation should clearly connect the new target to the specific valuation inputs you changed and any updated catalysts that affect timing or risk. Here, the exhibit supports three direct drivers: (1) a lower EV/2026E EBITDA multiple due to peer multiple compression, (2) a higher WACC driven by higher risk-free rates, and (3) a pushed-out FDA clearance catalyst. Statements about EBITDA forecast changes or rating actions are not supported by the exhibit and would be inappropriate to include as the reason for the change.
Key takeaway: tie the price target change to documented assumption changes and identified catalysts—no extra inferences.
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