Before someone can sell securities or offer financial advice they must first obtain the appropriate securities license. The Financial Industry Regulatory Authority (FINRA) is the organization that sets the requirements, oversees the process for earning an investments license, and administers most of the tests.
If you’re considering a career in the financial services industry it’s important to understand how securities licensing and registration works. Investors may also benefit from understanding what the various FINRA licenses signify when selecting an advisor.
What Is a Securities License and Who Needs Them?
A securities license is a license that allows financial professionals to sell securities and/or offer financial advice. The type of license someone holds can determine the range of financial products and services they have authorization to offer to clients. Someone who holds one or more securities or investments licenses is a registered financial professional.
FINRA is the non-governmental agency responsible for overseeing the activities of registered financial professionals. That includes individuals who hold FINRA licenses to sell securities or offer advisory services. Individual investors do not need a license to buy and sell stocks.
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Under FINRA rules, anyone who’s associated with a brokerage firm and engages in that firm’s securities business must have a license.
Some specific examples of individuals who might need to have a license from FINRA include:
• Registered Investment Advisors (RIAs)
• Financial advisors who want to sell mutual funds, annuities, and other investment packages on a commission-basis
• Fee-only financial advisors who only charge for the services they provide
• Stockbrokers and commodities or futures traders
• Advisors who oversee separately managed accounts
• Individuals who want to play an advisory or consulting role in mergers and acquisitions
The North American Securities Administrators Association (NASAA) represents state securities regulators in the United States, Canada, and Mexico. This organization is responsible for licensing investment advisor firms and securities firms at the state level, registering certain securities offered to investors, and enforcing state securities law.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Types of FINRA Licenses
FINRA offers a number of different securities licenses. If you’re considering a career in securities trading, it’s important to understand which one or ones you might need. The appropriate license will depend on the type of securities that you want to sell, how you’ll get paid, and what (if any) other services you’ll provide to your clients.
Here’s a rundown of some of the most common FINRA licenses, what they’re used for and how to obtain one:
FINRA offers the Series 6 Investment Company and Variable Contracts Products Representative Exam for individuals who work for investment companies and sell variable contracts products. The types of products you can sell while holding this securities license include:
• Mutual funds (closed-end funds on the initial offering only)
• Variable life insurance
• Unit investment trusts (UITs)
• Municipal fund securities, including 529 plans
Obtaining this FINRA license requires you to also pass the introductory Securities Industry Essentials (SIE) exam. This 75-question exam tests your basic knowledge of the securities industry. FINRA offers a practice test online to help you study for the SIE. You can also watch a tutorial to learn how the 50-question Series 6 exam works.
Beyond those options you may consider investing in a paid Series 6 study prep course. Series 6 courses can help you familiarize yourself with the various variable products you can sell with this license and industry best practices. You’ll need to obtain a score of at least 70 to pass both the SIE and the Series 6 exam.
People who see stocks and other securities must take the Series 7 General Securities Representative Exam. A Series 7 investments license is typically needed to sell:
• Public offerings and/or private placements of corporate securities (i.e. stocks and bonds)
• Stock warrants
• Mutual funds
• Money market funds
• Unit investment trusts
• Exchange-traded funds (ETFs)
• Real estate investment trusts (REITs)
• Options on mortgage-backed securities
• Government securities
• Repos and certificates of accrual on government securities
• Direct participation programs
• Venture capital
• Municipal securities
• Hedge funds
This securities license offers the widest range, in terms of what you can sell.
You’ll need to take and pass the SIE to obtain a Series 7 exam. The Series 7 exam has 125 questions in a multiple choice format and 72% is a passing score. FINRA offers a content outline you can review to get a feel for what’s included on the exam. You may also benefit from taking a study course that covers the various securities you’re authorized to sell with the Series 7 license as well as the ethical and legal responsibilities the license conveys.
Investment professionals can earn the Series 3 license by completing the Series 3 National Commodities Futures Exam. This test focuses on the knowledge necessary to sell commodities futures. This is a National Futures Association (NFA) exam administered by FINRA. It has 120 multiple choice questions, with 70% considered a passing score.
You have to pass the Series 3 license exam to join the National Futures Association. In terms of what’s included in the exam and how to study for it, the test is divided into these subjects:
• Futures trading theory and basic functions terminology
• Futures margins, options premiums, price limits, futures settlements, delivery, exercise and assignment
• Types of orders
• Hedging strategies
• Spread trading strategies
• Option hedging
• Regulatory requirements
Neither FINRA nor the NFA offer detailed study guides or practice tests for the Series 3 securities license. But you can purchase study prep materials online.
💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
The Series 63 Uniform Securities Agent State Law Exam is an NASAA exam administered by FINRA. The test has 60 questions, of which you’ll need to get at least 43 correct in order to pass with a score of 72%.
You’ll need this license if you also hold a Series 6 or Series 7 license and you want to sell securities in any state. The NASAA offers a downloadable study guide that offers an overview of what’s included on the Series 63 securities license exam. Topics include:
• Regulation of investment advisors
• Regulation of broker-dealers
• Regulation of securities and issuers
• Communication with customers and prospects
• Ethical practices
Beyond that, the NASAA offers a list of suggested vendors for purchasing Series 63 exam study materials. But it doesn’t specifically endorse any of these vendors or their products for individuals who plan to obtain a Series 63 license.
The Series 65 Uniform Investment Adviser Law Exam is another NASAA test that’s administered by FINRA. Holding this license allows you to offer services as a financial planner or a financial advisor on a fee-only basis. The exam has 130 multiple choice questions and you’ll need to get at least 92 questions correct to pass.
As with the Series 63 exam, the NASAA offers a study guide for the Series 65 exam that outlines key topics. Some of the things you’ll need to be knowledgeable about include:
• Basic economic concepts and terminology
• Characteristics of various investment vehicles, such as government securities and asset-backed securities
• Client investment recommendations and strategies
• Regulatory and ethical guidelines
You can review a list of approved vendors for Series 65 study materials on the NASAA website.
The Series 66 Uniform Combined State Law Exam is the third NASAA exam administered by FINRA. Financial professionals who want to qualify as both securities agents and investment adviser representatives take this test.
This multiple choice exam has 100 questions and you’ll need a score of 73 correct or higher to pass. If you already hold a Series 7 license, which is a co-requisite, you could choose to take the Series 66 exam in place of the Series 63 and Series 65 exams.
The study guide and the scope of what the Series 66 exam covers is similar to the Series 65 exam. So if you hold a Series 65 license already, you may have little difficulty in studying and preparing for the Series 66 exam.
Earning a securities license could help to further your career if you’re interested in the financial services industry. Knowing which license you need and how to qualify for it is an important first step.
Fortunately, you don’t need to hold a FINRA license to invest for yourself. For instance, you could do some research and work at building a diversified portfolio.
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