Editor's note: The following column is in response to a front-page story that appeared in the February national edition of the Agent's Sales Journal, "How to Get Started in the Securities Business" by Larry Klein. To read Mr. Klein's article, please visit www.AgentsSalesJournal.com.
Becoming securities licensed may not be as simple as you think. In order to become an investment advisor or an investment advisor representative (an investment advisor representative is to the investment advisor as a registered representative is to a broker-dealer), one has several examination choices. If one has passed the Series 7, then the next appropriate exam is the Series 66. If one has not taken the Series 7 but has the Series 6, they would have to take the Series 65 exam as well as the Series 63 (unless, of course, they already obtained the 63 when getting their Series 6, which is not uncommon).
The 63 is the state's agent's licensing exam permitting one to sell securities, and the 65 allows one to be compensated for giving advice. The advantage of the Series 66 is that it combines the requirements of the 63 and 65 and is the preferred method for new folks coming into the business with NYSE member firms, where the 7 is mandatory.
Now, regulators have been very adamant that passing one of the qualification exams does not confer any type of designation upon the applicant. Seven years ago, the NASD issued a Notice to Members bringing action against registered representatives who were displaying certificates indicating that they had passed an NASD exam that made it appear as if they had met some special standard. In fact, after my wife passed her insurance exam, I purchased one of those for her to display at home.
You do need a sponsoring B-D in order to take the securities exams. In many states, passing the 6 does not permit an insurance agent to sell variable annuities unless they also pass a variable-product exam.
Larry Klein is right on target about the movement toward asset-based fees and away from commissions, but I think he makes it sound like becoming a registered investment advisor is a piece of cake. No, you don't need to be affiliated with a broker-dealer, but, rather than being hassled by the NASD, you will come under the scrutiny of either the state or states in which you register or the SEC. Under the National Securities Markets Improvement Act of 1996 (NSMIA), investment advisor regulation was bifurcated between the states and the SEC. In a nutshell, any advisor firm (not an individual rep with an advisor) with less than $25 million in assets under management (AUM), has no choice but to register with the appropriate state or state's jurisdiction. If the firm has $30 million or more in AUM, then there is no choice. Registration with the SEC is mandatory. There is the $5 million window where you can pick your poison. Now, as an investment advisor, one comes under intense record-keeping requirements and, in many cases, the need for an annual certified audit. Many of our major insurance company clients have advisory subsidiaries, and we train many life insurance agents for both the Series 6 and 65 so that they can be compensated for the sale of variable insurance products as well as earn fees for capturing assets to be placed under management by advisors selected from a list provided by their firms.
While it is true that one must have a securities license to earn commissions on securities transactions, there is nothing prohibiting one from being both an advisor and securities registered, allowing one to earn both commissions and fees as mentioned above with those possessing the 6 and 65 or the 7 and 66.
Obtaining a securities license is hard work, but worth it for many in the financial services industry. Just don't underestimate the amount of work involved and the regulations surrounding you.
Chuck Lowenstein is senior editor of securities for Kaplan Financial.
