Whether you’re looking to buy or sell a security, you’ll likely use a registered representative to help complete the transaction. Registered representatives, usually working with a brokerage firm, help their clients trade securities and provide investment advice. Their practices are heavily regulated, and each representative has passed comprehensive qualifying exams. We’ll explore the fundamentals of how registered representative approaches their profession, but the securities industry is extremely complex. If you are eager to learn more, consider finding a financial advisor who can assist your investment strategy.
What Is a Registered Representative?
Registered representatives are also known as brokers. They work for broker-dealers and mostly trade securities, such as mutual funds, stocks, and bonds. All hold licenses granted by the Financial Industry Regulatory Authority (FINRA),a self-regulatory organization with federal authority to oversee the brokerage industry. FINRA also must sponsor any the financial firm a representative works for.
How to Become a Registered Representative
All prospective registered representative must first file a Uniform Application for Securities Industry Registration or transfer. This is commonly referred to as the U4 form. It collects information such as the applicant’s employment address, residential history, and outside business activities. Applicants also must disclose information about criminal history, financial events, or civil adjudication and submit to a full background check.
Once all the information gains approval, the applicant will receive a Central Registration Depository (CRD), which all stockbrokers must have and use throughout their career.
The license an applicant earns determines which securities they will be able to buy and sell. Two of the most common licenses are the Series 7 and Series 63. The Series 7 license allows brokers to sell virtually any individual security, excepting commodities futures, real estate, and life insurance. Series 63 allows professionals to sell any security in any state if they already hold a Series 6 or Series 7 license.
Have FINRA Qualifications Changed?
FINRA recently created a test, the Securities Industry Essentials (SIE) exam. It’s geared towards people just breaking into the securities industry, and almost anyone is eligible to take it. The SIE bundles information from a number of older FINRA exams. Test takers can use a successful SIE to gain employment with a FINRA member firm and to qualify for Series 7, Series 63 and other exams as ‘top-off’ accreditation.
That said, passing the SIE does not qualify a person to sell securities. It simply sets them up to take next steps into the industry. Established registered representatives whose credentials have not lapsed do not have to take SIE retroactively.
Registered Representatives’ Duties to Clients
FINRA and other self-regulating organizations created these qualifying exams and standards to provide a solid base for investor confidence. That confidence depends on registered representatives who serve their clients with honesty and integrity, whether those clients are institutions, businesses or individual investors.
Representatives also must follow the suitability standard, which means they should only recommend investment products that complement their client’s portfolio. However, representatives do have some wiggle room around this standard. For instance, if. an investment product doesn’t match a client’s risk tolerance or financial goals but will make money, a registered representative can still complete the transaction.
The Securities Exchange Commission (SEC), which sets these standards, also expects representatives to avoid excessive transaction fees. That said, there is no guarantee that any advisor will always act in their clients’ interests.
Differences Between Registered Representatives and Registered Investment Advisors
While there is crossover between the roles of registered representatives and registered investment advisors (RIA), they offer different services and must meet different obligations. RIAs work falls under fiduciary standards, which is a higher bar than suitability standards. While the SEC expects brokers to act in their clients’ interests, it more explicitly states that RIAs must never benefit if their clients do not.
The SEC also sets conditions for RIA’s fee-based structures, which dictate how they may receive payments. Generally, RIAs receive a percentage of the client’s assets under management. The fee structures should prevent conflict of interest between advisors and their clients.
The RIA’s role is more expansive than a registered representative’s. They may help clients with many aspects of their finances, such as structuring investment portfolios, funding retirement or creating long-term financial plans. They can touch many more points of their clients’ financial lives than registered representatives, which is why the fiduciary standard applies.
How to Find a Registered Representative
If you’re ready to partner with a registered representative you’ll find plenty of available professionals. That said, some homework is in order. Each broker possesses a variety of skills and options in the markets, and many capable ones may not quite align with your risk tolerance and strategy . There also are many financial institutions that offer brokerage services. If you already have an account with a bank or an institutional investor, you may want to start there.
FINRA’s BrokerCheck is an excellent fact finding tool that can expedite your research. It includes information on the backgrounds and qualifications of brokers and financial firms.
Registered representatives, or brokers, are licensed to act as middlemen for securities transactions. Their knowledge and expertise should make the market more comprehensible for their clients and help them purchase the right investment products.
If you decide to work with a registered representative, make sure you understand their fees upfront. While most receive a commission based on the money you spend, the suitability standard does not guarantee every choice they make will be 100% in alignment with your investing objectives. A careful walk-through the representatives fee structure can prevent payment surprises and ensure there are no conflicts of interest.
- If you’re a new investor, it may help to engage a registered investment advisor before you work with a registered representative. RIAs will take a global perspective on your financial situation and the fiduciary standard offers more protection for beginners.
- There is no one right way to approach investing or one type of financial professional everyone should engage. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
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