Licensing & Registration
Most investors pay little or no attention to advisor licensing. In most cases they do not even ask for proof that advisors are properly licensed in their state. They assume advisors are licensed to sell the products that they recommend. This is a very risky assumption.
Unlicensed advisors, who pose as legitimate, licensed professionals, sell investment scams. They have low risk of exposure because very few investors ask for any type of documentation. And, the regulators don’t even know the unlicensed advisors exist until there is a formal complaint by an investor. By then it is usually too late. Investor assets are long gone.
Stockbrokers and investment/sales/bank representatives have two primary types of securities licenses. The Series 6 permits them sell investment products (mutual funds) for commissions. The Series 7 permits them to sell a broader range of investment products (mutual funds, securities) for commissions.
A high percentage of sales reps claim to be financial planners or financial advisors. Securities licenses are a sure sign the financial advisor is really a sales representative.
There are two types of registrations. Registered Investment Advisor (RIA) is for firms. Investment Advisor Representative (IAR) is for professionals. IARs are registered with RIAs. If the firm is a sole professional the IAR and RIA may be the same person or entity.
This the best type of registration for investors for two reasons:
· Under the law, RIAs and IARs are financial fiduciaries. They are held to the highest ethical standards in the financial service industry. They are required to put investor interests first.
- The registrations permit the professionals to provide financial advice and ongoing services for fees.
Agents hold insurance licenses (life, annuity, health, long-term care). A high percentage of sales reps and financial advisors also hold active insurance licenses. Licenses do not mean the reps and advisors are insurance experts. Just about anyone can pass insurance exams. This extreme high turnover industry needs thousands of new agents each year to replace the ones that left.
A high percentage of reps and advisors are hybrids. These reps and advisors want to maximize their revenue streams per client. Consequently there could be advisors who are IARs, Series 7 licensed, and insurance licensed.
They can sell any investment or insurance product and get paid for it.
Anyone who has active securities licenses has a CRD (Central Registry Depository) number. This unique identifier can be used to verify advisor licenses at FINRA.org / BrokerCheck. Make sure the advisor has a CRD number and use the number to verify licenses.