It is common for those working (or hoping to work) in the financial services industry to refer to a “Series 7 license” or “Series 65 license.” Perhaps it’s the former-regulator in me, but I have always been bothered by the use of the term “license” in this context: it implies that passing an exam, alone, confers upon the exam-taker a professional license. That’s not quite true— here’s why.
The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization authorized by federal law to help protect investors and ensure the fair and honest operation of financial markets. FINRA regulates broker-dealer firms and securities professionals associated with those firms (“agents”), in part by requiring such firms and agents to register with FINRA.
There are prerequisites to becoming FINRA-registered. To register as an agent, individuals must first complete and file with FINRA a Form U-4, which discloses important information about the individual. The individual must also take one or more qualifying exams administered by FINRA to demonstrate their competency in specific areas. Most agents take the Series 7 General Securities Representative Exam (S7). Depending on the type of work the agent does, he/she may also have to take other exams administered by FINRA. Once the agent has passed all required exams and met other conditions of registration to the satisfaction of FINRA, then FINRA will register him/her.
But FINRA-registration, alone, still does not necessarily give an agent full license to conduct securities trades for clients throughout the country.
States securities administrators also regulate broker-dealer firms and agents—along with certain investment advisers (IAs) and investment adviser representatives (IARs). State regulators impose their own registration requirements upon such entities, and these requirements vary somewhat state-to-state.
As with FINRA, successful passage of one or more FINRA qualifying exams is a typical prerequisite of state registration as an agent. However, passing a FINRA exam alone does not automatically confer upon that agent a license to do business within any state. Rather, the agent must proactively apply for registration in each state where his/her activities require it, and must meet other state-specific requirements for registration in each jurisdiction.
An individual subject to IAR registration requirements— and/or someone who operates in a supervisory or control function of an IA firm— must also pass one or more qualifying exams. In Minnesota, such an individual must pass either the Series 65 Uniform Investment Adviser Law Examination (the S65), or both the S7 and the Series 66 Uniform Combined State Law Examination (S65). Though the S65 and S66 exams are administered by FINRA, they are written by the North American Securities Administrators Association (NASAA). As with agents, individuals are not automatically licensed to act as an IA or IAR upon successful completion of a NASAA exam: they must proactively seek and apply for registration in the state or states where they expect to do business.
What if I have a professional designation, like a CFP?
Some state laws exempt agents or IARs from taking a FINRA or NASAA qualifying exam if the applicant for registration has been awarded a professional designation. For example, the Minnesota Department of Commerce may allow an individual to register as an IAR in Minnesota if they are a Certified Financial Planner (CFP), a Chartered Financial Consultant (ChFC), a Chartered Financial Analyst (CFA), a Personal Financial Specialist (PFS), or a Chartered Investment Counselor (CIC). That said, having one of these designations does not excuse an individual from registration, or automatically confer a license to do business—it merely allows the individual to fulfill its prerequisite exam obligation. Individuals with professional licenses must still register in states where state law requires it.
Why is this Important?
When working as a securities regulator, I occasionally learned of financial services professionals (particularly new IAs or IARs) who took and passed a FINRA or NASAA exam, or who obtained a professional designation, and then started conducting business without becoming state-registered. Though such individuals may be perfectly well-intentioned and do great work for their clients, they are acting unlawfully and expose themselves to administrative and civil liability. When in doubt, get registered!
Brian Edstrom is a Shareholder and Attorney at Avisen
Legal, P.A. He brings to Avisen clients the ability to “speak regulator,” having
spent several years working for federal and state regulators in Washington D.C.
and Saint Paul, MN before entering private practice. Brian assists
clients in all aspects of working with securities regulators, whether it be to
obtain a license or registration, prepare for an audit, or respond to an
enforcement investigation. Brian also regularly advises clients on their
general business needs, particularly surrounding raising money through