Do Financial Advisors Need a License? - SmartAsset

License requirements to work as a financial advisor vary widely. Generally, depending on your practice, you will most likely need to take either the Series 6 or Series 7 exams as well as the Series 63, Series 65 or Series 66 exams. If you have another professional designation, such as CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Financial Analyst® (CFA®), you may be able to waive the Series 65 exam. The exact license you need for this work depends on what you’re doing and the laws of your specific state or jurisdiction.

Consider working with a financial planner as you create an investment, retirement or estate plan.

Financial Advisor Defined

The term “financial advisor,” which applies to a very wide range of potential services, describes a professional who helps guide and direct clients’ financial decision-making. A financial advisor may offer guidance on managing investments, planning for taxes and making retirement projections, among other things.

Until relatively recently, the term “financial advisor” was used to describe various positions across the financial industry. But a recent regulation from the U.S. Securities and Exchange Commission (SEC), called Regulation Best Interest (Reg BI), has limited who can use the title. Financial advisors generally are firms that serve as registered investment advisors (RIAs) or investment advisor representatives.

Conversely, when broker-dealers use these terms in their names or titles in the context of providing investment advice to a retail customer, they will generally violate the capacity disclosure requirement under Reg BI. The disclosure requirement generally refers to rules requiring advisors to appropriately inform customers of the scope and terms of their relationship as well as material facts related to conflicts of interest when making a recommendation.

What Is a Fiduciary?

Any advisor registered with the SEC is legally required to abide by fiduciary duty. That means they must put clients’ interests ahead of their own. According to the SEC, fiduciaries are expected to exercise a duty of care and a duty of loyalty to clients. And as a result, are “held to the highest standard of conduct.”

On the other hand, the SEC’s Reg BI under the Securities Exchange Act of 1934 establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.

Working with an advisor who abides by fiduciary duty gives you the assurance of knowing they’re legally obligated to put your interests first. While a fiduciary can still have conflicts of interest – which must be disclosed to clients – knowing that they have a duty of trust and loyalty to you, the consumer, can give you some peace of mind. That’s why most experts recommend asking an advisor whether they abide by fiduciary duty when you first meet with them. You can also use a service like SmartAdvisor, which matches would-be clients with fiduciary financial advisors.

The Most Common Financial Advisor Licenses

SmartAsset: Do financial advisors need a license?

While the exact requirements can differ between jurisdictions, you almost always need a license to do this work. As a general rule, to work as a financial advisor you must have passed the exams for your practice area. The Financial Industry Regulatory Authority (FINRA) oversees the licensing exams required by most states.

There are a lot of financial advisor licenses and exams. The specific license you need depends on your practice, and for many financial professionals that changes over time. For example, it’s common to need one license to trade securities and a different license to oversee and manage securities traders. As you grow in your career, you may need to get different licenses to reflect new skills and responsibilities.

As a general rule, the six most common licenses are:

Series 3 – National Commodities Futures Exam

The Series 3 exam licenses you to sell real estate, life insurance and commodities. Note that you do not need a Series 3 to sell most other forms of insurance; for example, you can freely sell auto insurance without a Series 3. The Series 3 is also not a requirement for dedicated real estate agents, who have their own licensing boards. This is a requirement for financial advisors to sell these assets as part of their practice.

Series 6 – Investment Company Products Representative

The Series 6 exam licenses you to buy and sell investment products. The general rule here is that you can sell packaged investments and third-party products so long as they are not specific, individual securities such as stocks or bonds.

Specifically, you may sell the following products:

Mutual funds
Variable annuities
Variable life insurance
Unit investment trusts
Municipal fund securities

Series 7 – General Securities Representative

The Series 7 exam licenses you to buy and sell all securities products. This includes all products licensed under the Series 6 exam, as well as any other asset. Some of the most common products that a Series 7 practitioner will sell include stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate investment trusts (REITs), futures, options, derivatives, accredited investments and more.

This is the generalist license. It allows you to practice as a general broker of securities.

Series 63 – Uniform Securities Agent State Law Exam

Series 63 is generally taken by advisors who work on a commission basis. To practice based on this exam, you must have either a Series 6 or Series 7 in addition to Series 63. This license allows you to work as a broker-dealer agent for firms that issue financial products.

Series 65 – Uniform Investment Advisor State Law Exam

If you receive payment by flat fee or hourly rate, instead of by commission, you must take the Series 65 exam. It is significantly longer and more in-depth than the Series 63, at 140 questions to the Series 63 exam’s 60 questions, but it allows you to practice as an investment adviser representative. This means that Series 65 allows you to practice in a fiduciary capacity, offering independent advice and financial services.

While most investment advisor representatives take one or both of the Series 6 and Series 7 exams in addition to their Series 65 exam, it is not required. (Practitioners could take both Series 6 and Series 7 if they had already taken Series 6 and then decided to expand their practice by taking Series 7.) If you have another professional designation, such as CFP or CFA, you may be able to waive the Series 65 exam. Check with your state for more details.

Series 66 – Uniform Combined State Law Exam

The Series 66 exam combines both Series 63 and Series 65. You may take it as an alternative to one or both of these exams. And it allows you to practice as both a broker-dealer agent and an investment adviser representative. To practice based on this exam you must have a Series 7 in addition to Series 66.

Bottom Line

As a general rule, financial advisors need a license to practice professionally. Exactly what license they need depends on their training and what they do.

Financial Advisor Tips

The insights and guidance of a financial advisor can help you reach your financial goals. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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