TMCnet Feature
April 27, 2020

Aaron Heiden Discusses Various Financial Licenses and What They Allow for in the Industry

Before handling financial investments on behalf of others, a person has to invest a considerable amount of time and effort into securing the proper license to do so.

But not all licenses are made the same — it depends on the type of investments a person plans to deal in. There are several different licenses that are administered by the Financial Industry Regulatory Authority (FINRA), notes Aaron Heiden of Hales Corner, Wisconsin.

Passing an exam to obtain a license is integral to practicing as an investment advisor or a registered representative, he adds. However, in some cases an advisor may have to earn a combination of the licenses to perform certain securities transactions.

Licensing Under FINRA

This organization is independent, but it also has been authorized by the government to oversee regulations when it comes to registered brokers and the (more than 3,700) related firms in the country to protect investors using their services, notes Aaron Heiden.

Although self-regulatory, the FINRA has the power to penalize brokers and firms and even ban them from practicing if they bend the rules. In fact, the independent body handed out more than $39 million in fines in 2019 alone, while barring almost 350 people.

With that being said, there are three main licenses issued by FINRA. They include the Series 3 (National Commodities Futures Examination), allowing representatives to sell commodity futures contracts, which outline all of the details for a binding commodity transaction in the future including the price and date. There is a high level of risk involved with these contracts because they speculate on the future value of a key product such as oil/gas or precious metals.

The Series 6 license allows representatives to sell mutual funds and other "packaged" investments. While required to handle certain investments, it's also required by insurance agents who sell variable annuities, which are anchored by securities.

The Series 7 license is earned through a difficult exam that is nearly four hours long. However, while it is the most challenging license of the three to obtain, it allows a licensee to deal in the widest range of individual securities including stocks and bonds (but not commodity futures).

The Series 9/10 exam grants the licensee to supervise transactions at a securities branch office. The exam helps to ensure competency of General Securities Sales Supervisors when it comes to the sale of securities including mutual funds and variable annuities. In order to be eligible to take this exam, the applicant must have also earned a Series 7 license.

Licensing Exams Created By NASAA

Some securities licensing exams were developed by the North American Securities Administrators Association (NASAA), which has a mission to protect investors from fraud, explains Aaron Heiden. While investigating potential violations of the rules, the organization also aims to educate the public about potential pitfalls. It is comprised from regulators from across every state (and U.S. territory) as well as Mexico and Canada.

Among the licensing exams created by NASAA (and administered by FINRA) is the Series 63, also known as a Uniform Securities Agent license, to ensure the licensee is familiar with particular state laws. However, in order to sell securities, a representative must have also earned a Series 6 or 7 license.

Meanwhile, the Series 65 license must be obtained by any professional that provides financial advice that's fee-based but not based on commission. There are some similarities to the Series 7 exam, but this license does not grant the person permission to operate as a broker as with a Series 7 license.

Applicants can also take the Series 66 exam, which essentially covers both the Series 63 and Series 65 exams, and will qualify someone to become either a securities agent or an investment advisor. However, the applicant must also earn a Series 7 license.

Aaron Heiden on Investing in Financial Licenses

While there are a wide variety of financial securities licenses available, choosing which exams to take is completely up to the goals of the individual, notes Aaron Heiden.

The exams for each license range in difficulty and may require another license as a prerequisite. There are also fees attached to the exams, but there are some tools to help review the exam content before trying to obtain the particular license.  

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