The world of investment and financial advice has never been more complicated. Understanding the web of available licenses and credentials can help you to more effectively position yourself for a move to an independent advisor model, whether as a Registered Investment Advisor, RIA, or as an independent broker-dealer, or as a hybrid of both, with some business under a fee-only model and some work as a broker. Understanding what licenses financial advisors should consider, and the potential conflicts between them, can help you to ensure your new independent practice is ready to go on day one.

FINRA, NASAA, and the SEC

FINRA, or the Financial Industry Regulatory Authority, is not a government agency, although it does take on a regulatory role within the financial industry. FINRA is a not-for-profit organization, and operates as the largest self-regulatory organization within the financial services industry. Under the oversight of the U.S. Government’s Securities and Exchange Commission, or SEC, FINRA administers the qualifying examinations and licensing of brokers and licensed financial advisors who sell or trade securities.

Among other activities, FINRA is responsible for:

  • Writing and enforcing rules governing the ethical activities of all registered broker-dealer firms and registered brokers in the U.S.;
  • Examining firms for compliance with those rules;
  • Fostering market transparency; and
  • Educating investors.

NASAA, or the North American Securities Administrators Association, is an association of state securities administrators that is responsible for protecting consumers who purchase securities or investment advice. NASAA, with FINRA, administers the series 63, 65, and 66 examinations and licenses, and maintains other responsibilities, including:

  • Licensing stockbrokers, investment adviser firms (those managing less than $100 million in assets), and securities firms that conduct business in the state.
  • Registering certain securities offered to the states’ investors.
  • Investigating investor complaints and potential cases of investment fraud
  • Enforcing state securities laws by fining, penalizing, providing restitution to investors, prosecuting white-collar criminals, and imposing legally binding conduct remedies designed to correct specific problems.
  • Examining brokerage and investment adviser firms to ensure compliance with securities laws and maintenance of accurate records of client accounts.
  • Reviewing certain offerings that are not exempt from state law.
  • Educating investors about their rights and providing the tools and knowledge they need to make informed financial decisions.
  • Advocating passage of strong, sensible, and consistent state securities laws and regulations. 

In general, fee-based advisors with $100 million or greater in regulatory assets under management (AUM) must register with the SEC as RIAs. RIAs with less than $100 million in AUM generally register with their respective state’s agencies, unless they meet one of the exceptions that allows them to register with the SEC directly.

The Series 6 And 7 Examinations

FINRA’s series 6 and 7 licenses are by far the most commonly sought qualifications for financial advisors and broker-dealers. Although similar, these two examinations are different, with the series 7 being much more comprehensive. Passing the series 6 exam, known formally as the Investment Company and Variable Contracts Products Representative Qualification Examination, qualifies a broker-dealer or advisor to solicit, purchase, and sell “packaged” financial products including mutual funds, variable annuities, variable life insurance, unit investment trusts, and municipal fund securities such as 529 educational savings plans and local government investment pools. However, to trade or sell annuity or insurance products, a representative must also pass a state life insurance examination.

The series 7 examination is more difficult and comprehensive than the series 6. Officially known as the General Securities Representative Qualification Examination, passing this exam allows a broker-dealer or advisor to trade and sell almost all investment products, including common and preferred stock, bonds, exchange-traded funds, real estate investment trusts , and options. The only common investment products not covered by this examination are real estate, commodities futures, and life insurance. To sell real estate or life insurance, specific state-regulated licenses are required, and to sell commodities futures, widely considered to be a particularly risky investment, a series 3 license is required.

The series 7 examination, which comprises 125 questions and lasts nearly four hours, is widely considered the most difficult FINRA examination. Most stockbrokers, investment advisors, and money managers hold series 7 licenses.

Newer advisors should be aware that as a prerequisite to either the series 6 or series 7 licenses, advisors must pass the introductory Securities Industry Essentials, or SIE, examination, and must be sponsored by a FINRA member institution. 

The Series 63, 65, and 66 Examinations

Financial professionals who wish to become Registered Representatives are required to pass a series 63, 65, or 66 examination. These examinations are NASAA requirements administered by FINRA, and are generally taken after a prospective advisor or representative has passed one of the “core” series 6 or 7 examinations, although the 6 or 7 is not a prerequisite for the series 65 license.

The series 63 exam, officially known as the Uniform Securities Agent license, is required for all series 6 and 7 license holders, and is required by each state. This license allows holders to trade variable annuities and unit investment trusts in each state. Although the series 63 examination does not require that a holder be sponsored by a FINRA member, passing only the series 63 only allows you to trade securities in the state in which you pass the examination. For this reason, the series 63 is usually combined with a series 6 or series 7 — which do require sponsorship — to allow holders to trade securities nationwide. 

The series 65 license is required for advisors, like Investment Advisor Representatives (IARs) who work for RIAs and who wish to provide fee-based advisory services to clients. The series 6 or 7 is not a prerequisite for those who wish to hold this license, and holders do not need to be sponsored by a FINRA member to take the exam or hold a series 65 license. Advisors who hold only a series 65 license have a fiduciary duty to their clients and provide advice — they cannot trade securities, and must contract with a custodian or broker-dealer to make any transactions. 

The series 66 exam is, essentially, a combination of the series 63 and the series 65 exams. This exam, officially designated the NASAA Uniform Combined State Law Examination, is a North American Securities Administrators Association (NASAA) exam administered by FINRA. To hold a series 66 license, an advisor must also hold a series 7 license. The combination 7/66 license is commonly held by broker-dealers who also wish to provide fee-based advisory services. 

The Certified Financial Planner (CFP) Examination

Certified Financial Planners, or CFPs, are advisors who have undergone specialized training, met the experience requirements, and passed the rigorous CFP examination, administered by the Certified Financial Planner Board of Standards. 

While all CFPs are financial advisors, not all advisors are CFPs. To become a CFP, an advisor must hold a Series 65 securities license, complete coursework through a CFP Board registered program, and have a bachelor’s degree from an accredited university. The CFP must also pass the CFP examination, a 170-question, multiple-choice examination addressing topics including retirement planning, estate planning, tax and investment planning, and risk management and insurance planning, among others. A CFP must further complete either 6,000 hours of professional experience or 4,000 hours of apprenticeship experience. CFPs must also make a pledge to act as a fiduciary and meet the CFP board’s high ethical standards.

Want to Keep the Conversation Going?

Thinking about making the leap to independence, but not sure which licenses are right for you? All of us at Terrana Group welcome the opportunity to consult with you to determine the right platform for you going forward — one that satisfies your long term objectives and is also best for your clients!

Over the course of nearly 30 years, we have consulted on and closed thousands of professional placements for Advisors, nationwide, in most every major city throughout the United States, with client assets transferring exceeding $67 billion dollars. We have built deep relationships with the advisory world’s most sophisticated and notable firms — including Wall Street Brokerages, most Regionals, Boutiques, Banks, Independent Broker Dealers, RIAs and Custodians. Our broad knowledge of those firms and the deals that are currently being offered will ensure that you are being presented with the right firm choice, platform, and the offer which is best for you.

Confidentiality, professionalism, and respect are protocol to our practices and beliefs; we handle each and every step of the placement process with complete communication, keeping you informed while making the process smoother from beginning to end. 

We are proud to always be considered as a great asset by our clients because of our proven expertise, many years of knowledge, and acute attention to detail. Financial Advisor Recruiting Services are not all created equal; we guarantee that the TG experience for clients and candidates is always world class.

We are based in Chicago, with a nationwide reach. Let us know you are interested by contacting us today. To get the conversation started, email info@terranagroup.com or give us a call at 312.655.8380 today.