What Is a Registered Representative (RR)
A registered representative (RR) is a person who works for a client-facing financial firm such as a brokerage company and serves as a representative for clients who are trading investment products and securities. Registered representatives may be employed as brokers, financial advisors, or portfolio managers.
Registered representatives must pass licensing tests and are regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). RRs must furthermore adhere to the suitability standard. An investment must meet the suitability requirements outlined in FINRA Rule 2111 prior to being recommended by a firm to an investor. The following question must be answered affirmatively: "Is this investment appropriate for my client?"
- A registered representative (RR) is a financial professional who is able to deal with client transactions in the securities markets.
- RRs must pass strict licensing requirements, including the Series 7 & 63 exams, and must follow rules set out by FINRA and the SEC.
- RRs must also uphold the suitability standard, and there is ongoing discussion among regulators about changing this to the stricter fiduciary standard.
Understanding Registered Representatives (RR)
Registered representatives can buy and sell securities for clients. They are primarily known as transaction-based service providers. To carry out these transactions a registered representative must be licensed to sell the designated securities. They must also be sponsored by a firm registered with FINRA.
To become licensed as a registered representative for a sponsoring firm, a person must pass the Series 7 and Series 63 securities examinations. These exams are administered by FINRA. The Series 7 license allows the registered representative to buy and sell stocks, mutual funds, options, municipal securities ('munis'), and certain variable contracts (e.g. insurance or annuity products) for their clients. Since October 2018, Series 7 candidates are required to pass the Securities Industry Essentials (SIE) Exam before sitting for the Series 7.
The Series 63 license allows the representative to trade variable annuities and unit investment trusts. A substantial portion of the Series 63 exam is focused on state securities requirements across the U.S. Other licenses may also apply for various other types of transactions. RRs may also obtain the Series 65 and/or Series 66 licenses in order to expand their set of allowable activities.
The purpose of the Series 7 license is to establish a standard level of competency and ethics for registered representatives in the securities industry.
Standards for Registered Representatives
Investors seek registered representatives to carry out financial market transactions on their behalf as brokers (or "agents"). Registered representatives typically have access to a full range of market trading capabilities that fit the needs of their investors. They may also be able to execute thinly traded securities or have access to new securities launches.
RRs vs. RIAs
Registered representatives differ from registered investment advisors (RIAs). Registered representatives are governed by suitability standards while registered investment advisors are governed by fiduciary standards. Registered representatives are transaction-based service providers. U.S. regulators require that registered representatives ensure an investment is suitable for an investor given their investment profile. They also ensure that trades are executed efficiently. Investors will incur sales charges determined by securities issuers when dealing with a registered representative.
Registered investment advisors seek to offer more holistic financial plans and investing services. They offer very different fee schedules and are typically fee-based by assets under management. Registered investment advisors are regulated by fiduciary standards which go beyond standard suitability. RIAs develop comprehensive financial plans and must ensure the best interest of the client.
RIAs are considered to be acting in a fiduciary capacity, and so held to a higher standard of conduct than registered representatives. This fiduciary standard mandates that an RIA must always unconditionally put the client’s best interests ahead of their own, regardless of all other circumstances.
Identifying a Registered Representative
Investors seeking the services of a registered representative will find a range of options in the investment market. Companies like Charles Schwab offer discount and full-service brokerage services. With Charles Schwab, for instance, an investor can place electronic trades at a discounted cost. The discount brokerage service offers a registered representative call center where a client can speak with a broker to execute trades. Charles Schwab also offers full-service brokers who work as account executives for clients and support a broad range of trading activities.
FINRA also offers a service called BrokerCheck. Through BrokerCheck an investor can research the experience and disciplinary record of brokers and brokerage firms.
Past Activities That Can Disqualify You
There are several events that could either prevent a person from becoming a registered representative, or that would result in the loss of membership or registration.
According to FINRA, you could be subject to a "statutory disqualification" under the Securities Exchange Act of 1934 if you:
- were convicted, or pled guilty or no contest to any felony.
- were charged or convicted with a misdemeanor involving investments and related to fraud, extortion, bribery, or other unethical activities.
- were involved in arbitration or civil litigation in which you were found to violate sales practices.
- received a final order, from a state securities commission, state authority, federal banking agency, etc., that barred you from an association to that authority or from engaging in securities, insurance, banking, and other financial services.
- participated in fraudulent, manipulative, or deceptive conduct that violated any applicable laws or regulations.
- had a registration revoked or suspended from an accountant, attorney, or federal contractor role.
- filed for bankruptcy within the last 10 years.
- made a false statement or omitted material information.
Note that the preceding items are a brief summary of the disclosure questions included on FINRA Form U-4. FINRA also provides a detailed summary of the statutory disqualification process.