“WEIGHING YOUR OPTIONS” Should I Get My Securities License?

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There has been a lot of discussion the last few years as to whether an insurance agent should pursue a securities license. This has led to many questions. For instance, which license is appropriate for me? What are the regulatory issues? Should you be a Registered Representative (RR), Registered Investment Adviser (RIA) or an Investment Adviser representative (IAR)? Adding to the confusion is the bias of the person providing advice on the subject. In this article, I will weave through the maze of misinformation and try to provide the clarity that can help each reader make the right individual decision.

Insurance agents are licensed to sell insurance products only so; the first decision is whether you have a desire to add a new line of business. Several events have created the misconception that it’s necessary to have a securities license in the first place. Attempts by the securities industry to regulate fixed indexed annuities (FIAs) made many agents believe they needed a securities license to continue to offer this safe money product. Rule 151A was ultimately vacated by the DC Circuit of Appeals in 2010 and FIAs were declared insurance products as part of the Dodd-Frank bill. Since then, source of funds became the new concern.

How do you move securities into a safe money product without giving unlicensed investment advice? If you choose to concentrate your business on insurance and fixed annuities, you simply cannot advise a client to liquidate specific securities to fund your product. There are a number of agents who don’t realize that even certificates of deposit are by definition – securities. You don’t have to have a securities license but, as you have heard said before, document, document, and document.

You should not get a securities license for defensive reasons. You should make the decision based on a genuine desire to add risk management to your financial services practice. It shouldn’t be an “oh by the way” business but instead be viewed as an opportunity to add value to your client relationships and increase your revenue.

If you have made the decision, ask which license makes the most sense for you. The most common brokerage licenses are the Series 6 and 7. The 6 allows you to offer mutual funds and variable annuities, while receiving commission. The 7 is the general securities license that allows you to sell additional products such as stocks and bonds and receive commission. With a Series 6 or 7, you would be considered a Registered Representative. Candidates must be sponsored by a member of FINRA in order to take the exam and then register with FINRA through their sponsoring firm. One of the major considerations is to understand the Notice to Members 05-50. Rule 05-50 addresses the responsibility of firms to supervise the sale by their associated persons of indexed annuities that aren’t registered under the federal securities laws. In other words, you would need to know that the Broker/Dealer you’re associated with is required to oversee your insurance practice as well. Many firms will also have their specific approved list of FIAs that would have to be adhered to.

The Series 65 is the exam needed for investment advisers. Successful completion of the Series 65 exam qualifies an investment professional to function as an Investment Adviser Representative. It isn’t necessary to be sponsored by a firm to take the exam. You have the option of completing Form U-10 which opens up your testing window. After successfully passing the test, you can then affiliate with a Registered Investment Advisory firm (RIA) or form your own. The Series 65 exam is administered by FINRA, but it’s the only securities license that isn’t regulated by FINRA. Investment advisers are regulated by their State or directly by the SEC. Therefore, as an insurance agent, the 65 eliminates the issue of Rule 05-50 if it’s the only securities license you hold.

However, the decision to become an Investment Adviser Representative (IAR) shouldn’t be taken lightly. Registered Representatives (Series 6 and 7) are subject to the suitability rules, but an IAR is obligated to act in the best interest of the client or as a fiduciary. Once you’re legally a fiduciary, you’re always a fiduciary in all aspects of your financial services business. As an IAR you’re allowed to be paid for advice but typically aren’t allowed to receive commission on securities products. IARs receive an ongoing fee based on the value of your clients’ total assets under management (AUM).

Successfully passing the Series 65 allows you to form your own RIA firm or be an IAR affiliated with the RIA firm of your choice. It’s important to understand the difference before you make your decision. Forming your own RIA carries with it all the responsibility of being at the “firm” level. There are a multitude of tasks and ongoing requirements to stay in good stead with your State or the SEC that are too numerous to list in the context of this article. Know, however, that you would shoulder all the responsibilities created by the regulatory oversight you’re under. You would need to form your own RIA if you have the desire to choose how to manage investment assets yourself, or you have the option to use multiple outside money managers. As an IAR, you’re simply a representative of the RIA and therefore can primarily concentrate on your client relationships and gathering assets. The RIA is ultimately responsible for deciding which investments are appropriate.

The securities license does open the door to new opportunities that can help your clients and grow your business. It can create a recurring revenue stream that adds value to your practice over time. The potential synergy between your insurance and risk management business may help both become more successful. However, first make sure that you’re truly interested in a new line of business and take your time to determine which license and registration is the most appropriate for you individually.

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