enforce rules related to client interactions, ethics, and practice standards.
Of particular importance is the Employee Retirement Income Security Act of 1974 (ERISA). According to the U.S. Department of Labor, ERISA is a federal law that sets minimum standards for pension plans in private industry. ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit. ERISA requires plans to regularly provide participants with information about the plan including information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; requires accountability of plan fiduciaries; and gives participants the right to sue for benefits and breaches of fiduciary duty.”33
Fiduciary definitions and rules are also important. Any financial planner who operates or performs functions related to a qualified retirement plan is considered to be a fiduciary. Fiduciaries must act solely in the interest of plan participants and their beneficiaries, be prudent in carrying out duties, follow plan documents (unless inconsistent with ERISA), diversify plan assets, and pay themselves only reasonable expenses. The topic of fiduciary status has expanded beyond retirement planning. An ongoing active debate is unfolding that would require all financial planners to maintain a fiduciary relationship with clients. At this time it is not known whether this will ever occur.
Financial planners should be familiar with all FINRA and SEC licensing and registration requirements. As a reminder, financial planners who provide advice for a fee generally must register either with the SEC or with their state securities enforcement office. Financial planners who work on a commission basis must hold a qualifying license issued by FINRA. Examples of licenses include:
■ Series 6: Investment Company Products/Variable Contracts Limited Representative
■ Series 7: General Securities Representative
■ Series 14: Compliance Officer
■ Series 24: General Securities Principal
■ Series 26: Investment Company and Variable Contracts
■ Series 42: Registered Options Representative
■ Series 52: Municipal Securities Representative
■ Series 63: Uniform Securities Agent State Law
■ Series 64: General Securities Principal
■ Series 65: Uniform Investment Adviser Law
■ Series 66: Uniform Combined State Law
Financial planners who sell insurance products must additionally hold at least one of the following licenses:
■ Life and accident
■ Health
■ Fire and casualty
■ Limited lines automobile
■ Personal lines
Related Content Areas Associated with the Learning Objectives
■ Financial planners must have a strong grounding in SEC regulations and FINRA policies.
■ It is also important that planners understand how financial services regulations and requirements integrate into the planning process.
■ This learning objective is linked with the function, purpose, and regulation of financial institutions, as well as consumer protection laws.
IN CLASS
*Appropriate for on-campus course.
**Appropriate for both on-campus and distance courses.
PROFESSIONAL PRACTICE CAPABILITIES
Entry-Level: An entry-level financial planner can identify key elements of the following securities licensing examinations and match each license with the appropriate product sale:
■ Series 6: Mutual Fund and Annuity Representative
■ Series 7: General Securities Representative
■ Series 24: General Securities Principal
■ Series 26: Investment Company and Variable Contracts
■ Series 55: Equity Trader Limited Representative
■ Series 63: Uniform Securities Agent State Law
■ Series 65: Uniform Investment Adviser Law
■ Series 66: Uniform Combined State Law (combines Series 63 and 65 examinations)
In addition to these securities licenses, entry-level financial planners who provide life, accident/health, property and casualty, personal, crop, or title insurance services can recall state licensing rules and regulations. They can pass the test for a basic life insurance license if required. Entry-level financial planners can also identify SEC and state investment advisor registration requirements, regardless of their current compensation method.
Competent: The transition from entry-level to competent status in the financial planning profession tends to be relatively quick. This is the result of increasing state and federal regulation of the financial services marketplace and an amplified attention by firms to educate their employees on regulation compliance. Many proficient financial planners hold the Series 6, Series 7, or Series 63 and 65 licenses, depending on the services provided. One who provides services for a fee should also be registered either as an investment adviser or as an investment advisor representative. Generally, planners who manage for a fee less than $100 million in client assets must register at the state level.
Expert: An expert commission-based or fee-based financial planner will additionally hold a Series 24 General Securities Principal license. This license verifies that the financial planner fully understands and can interpret and enforce all FINRA regulations, brokerage firm operations, and other supervisory requirements. In other words, a Series 24 license allows an individual to supervise and manage brokerage firm operations. An expert financial planner who is compensated by way of client fees holds a Series 65 license or a combination of Series 66 and 7 licenses,34 or is currently certified as a CFP professional.35
IN PRACTICE
Shaylea Mueller is a new financial planning graduate. She just received a job offer from a large financial planning company that requires Shaylea to pass a series of examinations before meeting with clients. Shaylea has researched the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) websites to learn more about the examinations she may need to take. As a registered representative, Shaylea has learned that she is subject to suitability standards and will be required to pass a series of FINRA examinations. Specifically, Shaylea is required to take the FINRA Series 7 and 65 examinations in order to sell most of the investment products offered by her firm. Now that Shaylea has a job, her employer is able to sponsor her to take these examinations.
Jorge recently
K. C. Garrett and J. E. Grable, “State Investment Adviser Representative Examination and Waiver Requirements,”
Other certifications can be used to waive licensure requirements for investment advisers, including the ChFC, PFS, CFA, and CIC. See Garrett and Grable (2007) for more information.
