In our last blog, we explored the most common types of business models available to CPAs. In our blog below, we outline the licensing and registration that is required for the three business models.
Selecting the right licensing and registration
Determining if you want to be a Registered Representative or an Investment Advisor begins with the role you desire in offering financial services and the array of services you want to offer your clients.
The Financial Industry Regulatory Authority ‘FINRA’ oversees all securities licensing procedures and requirements. FINRA administers many of the exams that must be passed to become a licensed financial professional and performs all relevant disciplinary and record-keeping functions.
There are three general licenses that most representatives and advisors obtain. Each license corresponds to specific types of investments. The first licensing decision to be considered is to determine if you desire registration as a Registered Representative (RR) with Broker/Dealer (B/D) registration, or as an Investment Adviser Representative (IAR) commonly referred to as an Investment Advisor. An RR with B/D registration can earn commissions on transactional activities such as selling mutual funds, stocks, bonds, and variable annuities if the proper licenses are held. An Investment Advisor (IAR) can earn fees, often based on assets under management, but not earn commissions for transactions unless the additional licenses are also held.
The exams dictate your license registration and the products you can legally offer and be compensated for. The information below outlines the primary exams.
Registered Representative – Broker/Dealer Licensing
A Registered Representative must obtain either the Series 6 or Series 7 license to offer transactional investments, the Series 63 exam for the ability to sell in additional states, and the Series 65/66 exam to offer fee based services such as managed accounts as an investment adviser.
Series 6 – The Series 6 license is a limited-investment securities license and it allows representatives to sell “packaged” investment products such as mutual funds, unit investment trusts, and variable annuities (with an insurance license). Series 6 exam outline
Series 7 – The Series 7 license is a general securities (GS) license that allows representatives to sell most types of securities including stocks, bonds – taxable and municipal, call/put options, and all packaged products available within the Series 6 registration. The Series 7 license pairs with a life insurance license for variable annuities and excludes commodities futures. Series 7 exam outline
Series 63 – The Series 63 license, known as the Uniform Securities Agent license, is required by each state and authorizes licensees to transact business within the state. All Series 6 and Series 7 licensees must carry this License.
Requirements to take exams
In order to take securities exams, an individual must be sponsored by a Broker/Dealer to establish a “window” of time to take the exam. When the exams are successfully completed, the individual will be registered as a Registered Representative of the Broker/Dealer.
Investment Advisor Representative Licensing
An Investment Advisor must complete the Series 65 exam or Series 66 exam if paired with the Series 7. Investment Advisors that are compensated by fees (not commissions) for their services in financial planning, investment management, and advice, must complete one of these exams to gain appropriate licensing.
RIA exams – Series 65/66
Individuals do not need to be sponsored by a Broker/Dealer in order to take the Investment Adviser exams. Upon passing the exam, the adviser can ‘hold themselves out’ (advertise) as an ‘Investment Adviser Representative,’ (IAR) often referred to as a ‘Registered Investment Adviser.’ Technically, the firm is a Registered Investment Adviser and the representatives are IA Representatives. Registration for an RIA is at the state level through the State Regulator for firms with less than $100 million under management or nationally through the SEC if assets exceed $100 million.
Series 65 – The Series 65 license is required by representatives that provide financial advice or service on a non-commission basis.
Series 66 – This Series 66 is similar to the Series 65 exam, however it combines the Series 63 and 65 exams into one exam and is only available to professionals that have passed the Series 7 exam
The North American Securities Administrators Association (NASAA) is the national organization of State Securities regulators and assists its members in protecting investors. The NASAA website has additional information about the various securities exams and the role of state regulators. For more information, use these links to the NASAA website: Series 65/66
All securities exams administered by FINRA have a passing score of 70%, except for the Series 63, 65 and 66, which have passing rates of 72%, 72% and 75%, respectively. All tests are given by computer at approved testing sites.
Most Broker/Dealers require registration to be exclusive, although some allow RIA registration to be more flexible.
As you consider your licensing options, keep in mind that you want to obtain the licensees that will allow you to help and guide your clients best. Good Luck!
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