To sell, or not to sell? Financial planners face this quandary when they decide whether to become licensed to sell securities in addition to the services they currently offer clients. Certainly, offering securities is a service that many clients request, and it can be very lucrative, making your practice a veritable one-stop shop for all of a client's financial needs.
However, gaining a license to sell securities is no easy task. It requires sponsorship from a broker-dealer and months of study and preparation before you can even sit for the licensing exams. And then, when you finally obtain your license, there are constant continuing education requirements to keep up with.
It's important for planners to carefully weigh the merits of adding a securities license to their repertoire against the effort and risk involved. In this article, we'll take you through the steps you'll need to go through so you can make an educated decision.
Choose Your Platform
Regardless of whether it will be a primary or secondary line of business, anyone who decides to become securities-licensed will have to find a suitable broker-dealer that will sponsor them. This process may take a while and should not be rushed. There are dozens of excellent companies to choose from in this category, and your choice should depend upon several factors, such as the level of payout on gross commission and the particular products and services that are offered.
For example, if you already have a large number of highly compensated clients, then you may want to consider a broker-dealer that offers custom-tailored non-qualified plans for key employees. Of course, different firms specialize in different areas; some firms delve deep into retirement planning vehicles while others will provide avenues for alternative investments, such as 1031 property exchanges or tax credits.
The world of broker-dealers can be divided up into two main categories: retail and independent.
- Retail Firms. Brokers who work at retail firms function essentially as employees, even if they are technically independent contractors. They will have a manager on site that supervises their production and administration. They will receive corporate support such as an office, business cards, health insurance, and a retirement plan. In return for this support, retail reps generally face much higher production quotas and lower payouts on commission than independent brokers. If you're looking to get your start in the financial industry by selling investments, then a retail firm that provides all of the tools you need to be successful will probably be your most logical choice.
- Independent Firms. Independent brokers are also usually much more able to combine their financial planning practices with other lines of business, such as taxes or estate planning. For this reason, most professionals with an established practice choose to work with independent broker-dealers. You will need to shop around a little to find a firm that offers a particular suite of products and services that best fit your clientele.
Which Licenses Will You Need?
Most major retail brokerage firms require their new associates to obtain the Series 7 and 66 licenses. Series 31 and are also common. Note that the Series 66 license is a consolidated license, combining the Series 63 and 65 licenses and the material is related to both blue-sky and registered investment advisory provisions.
Independent broker-dealers may be more liberal with their licensing requirements. For example, a CPA who desires to benefit his or her clients by offering annuities and retirement planning services may only be required to take the Series 6 exam that enables him or her to sell mutual funds and other types of packaged investment products, instead of the Series 7 exam that covers virtually all types of securities. Independent representatives can often pick and choose which licenses to obtain based on the types of products and services that they intend to offer to their clients.
Once you have chosen a sponsor and are welcomed aboard, you will immediately have to begin studying for all of your required securities and insurance exams. Many securities and insurance representatives admit that this phase of their careers, while short, was by far the most unpleasant.
Most retail brokerage firms will provide you with an in-house training program that pays you a salary based on your previous income while you study. Independent firms generally provide much less support in this category, although they may have an agreement with a training provider that allows you to purchase study materials at a discounted price.
Regardless of which category you fall into, studying for securities and insurance exams can be an exhausting task. If you are an independent representative, signing up for classes and/or a review course can make the process much easier.
Most training materials and instructors can provide you with all of the test-taking tips that you will need to pass the requisite exams. But for some representatives, the time that elapses between the time they hit the "finished" button on the test screen to the test score readout will still be the longest 30 seconds of their careers.
Remember to employ all of the test-taking strategies that you learned in school: Never change an answer that you guess on unless you remember something that definitively allows you to discard it, always start the day with a good breakfast, don't cram the morning of the exam and, finally, dress comfortably.
Congratulations! You Passed!
For the moment at least, the worst is over. The Financial Industry Regulatory Authority (FINRA), which is responsible for all regulatory oversight of securities licensees, is immediately notified that you passed your test and then your broker-dealer will procure the necessary registration paperwork for you to complete. The main form that must be completed by each licensee is the U-4 form. This form is kept on file by the FINRA. Completing the U-4 form will include a comprehensive residential and employment history for the past 10 years, along with a criminal background check and credit report assessment.
Candidates that have serious credit issues, such as a bankruptcy or any kind of criminal history outside of minor traffic offenses, are generally disqualified at this point. Fingerprinting and payment of processing fees for independent licensees will generally complete the process, along with any other firm-specific requirements that may be included.
Getting into Production
Once the initial bureaucratic snarl has been satisfied, retail representatives are usually provided with a more comprehensive product and service training, while independent representatives may have to learn much of this as they go. For example, a firm such as Merrill Lynch or UBS (UBS) will usually send all new representatives to a central corporate location for at least two weeks, where they are given a thorough introduction to the company's compliance policies, administrative procedures, and corporate philosophy.
Wholesalers from various investment companies will also come to explain their products to trainees and begin to build personal relationships with them. However, retail reps will generally face much higher production quotas than independent reps, who must pay most or all of their own expenses. Although independent representatives may be given a fair amount of training as well, many independent broker-dealers will only hire brokers with a certain level of experience in the business, who are already familiar with many of the products and services that are available.
In order to maintain their licensure, all registered representatives must satisfy annual continuing education requirements that are mandated by FINRA and the Securities and Exchange Commission (SEC). There are two main elements to continuing education: the firm element and the regulatory element.
- Firm Element. The firm element applies to those who sell or trade securities in any way, also called a "covered person" by FINRA. It focuses on practical topics and changes that happen in the industry from one year to the next.
- Regulatory Element. The regulatory element applies to those who hold a Series 6 or 7 license or those who supervise securities licensees. It must first be completed after you've been licensed for two years, and it comes due every three years after that.
Each component must be satisfied separately in order to fulfill all continuing education requirements.
The Bottom Line
Becoming securities licensed is a demanding process that includes a selection of a broker-dealer, passing the required securities and insurance exams, and a personal background check. Once the initial requirements have been satisfied, then the real work of building up a business from scratch begins. While the securities business can certainly be a very rewarding and lucrative career, candidates who wish to become licensed should carefully weigh the costs, limitations, and effort that is required against the potential rewards.