Did you know the title “financial advisor” can be adopted by nearly anyone, from seasoned investment advisors to those with minimal financial expertise? With so many professionals on the market, a license could be crucial to choosing the right one. It gives you key insight into the services an advisor offers and the regulations that could protect you as a client.
Here, we delve into various financial advisor licenses, shedding light on what they represent and why they should be a key consideration when seeking financial advice.
First, What Is a “Financial Advisor”?
The term “financial advisor” is an umbrella term for a range of professionals who provide advice on managing finances, each with varying degrees of expertise and areas of focus. People often use it in reference to the persons associated with a registered investment advisor (RIA), who provide investment advice and portfolio management services. However, the term is also used by other professionals, such as tax advisors, certified public accountants, insurance agents, and mortgage brokers.
When Do Advisors Need a License?
Financial advisors require state or federal licenses based on the nature of the products and services they offer. For example, to render investment advice about securities, a person must generally be registered as an RIA or employed by an RIA as an investment adviser representative. State law typically requires that the investment adviser representatives must pass a Series 65 exam. Advisors who sell insurance products will require other state-specific licenses.
It’s important to note that many titles within the financial industry don’t require licensure, but advisors often pursue credentials to enhance their credibility, differentiate themselves in a competitive market, and attract more clients. For example, investment adviser representatives seeking to expand their expertise as financial planners might pursue certification from the Certified Financial Planner Board of Standards. You’ll often find advisors with multiple licenses, reflecting the breadth and depth of their expertise across different financial disciplines.
Common Examinations For Investment Professionals
As a prerequisite to becoming associated with a broker-dealer or investment adviser, a person may be required to take and pass certain series examinations. Some of the more common ones are:
Series 6 (Investment Company Products Representative): Issued by the Financial Industry Regulatory Authority (FINRA), Series 6 enables broker-dealer agents to sell mutual funds, variable annuities, and life insurance policies — not individual stocks and bonds.
Series 7 (General Securities Representative Examination): Series 7 is a comprehensive license issued by FINRA that allows broker-dealer agents to sell a wide range of securities, including individual stocks and bonds.
Series 65 (Uniform Investment Advisor State Law Examination): Also administered by FINRA, this license is required for broker-dealer agents and investment adviser representatives offering investment advice on a fee basis.
Series 66 License (Uniform Combined State Law Examination): Combining Series 65 and 63, Series 66 allows broker-dealer agents to act as both securities agents and investment adviser representatives.
Common Financial Certifications
Many financial advisors also seek out additional financial designations. These certifications are typically optional and are pursued by financial advisors wanting to expand their expertise in a certain area. Some of the most common certifications among advisors include:
Certified Financial Planner (CFP®): The CFP® certification is a professional designation that reflects high expertise in financial planning. Holders have met stringent education, examination, experience, and ethics requirements.
Chartered Financial Analyst (CFA®): This designation is a credential in investment management and financial analysis. Exams cover ethical and professional standards, investment goals, asset valuation, and portfolio management.
Chartered Financial Consultant (ChFC®): Similar to the CFP®, the ChFC® designation denotes expertise in financial planning, focusing on areas like insurance, investing, and retirement planning.
Advanced Licensing: Benefits to the Client
Again, certain advisors face minimal licensing requirements—often entailing short tests without prerequisites for experience or education. When considering working with a financial professional, we believe it is important to seek out professionals with designations like CFP®, CFA®, and ChFC®, which impose more rigorous codes of ethics and educational standards. These can offer clients a higher level of assurance and credibility in the following key areas:
Trust and Security: These rigorous programs ensure advisors have a deep understanding of financial principles, practices, and ethics. Certification bodies also maintain records of any disciplinary actions against advisors, providing an additional layer of transparency and accountability.
Expertise: Advanced designations ensure advisors have a comprehensive understanding of financial planning, investment strategies, and market trends. This depth of knowledge is critical in developing strategies that can navigate the complexities of the financial landscape and secure and enhance clients’ financial well-being.
Personalized Strategies: With these more comprehensive qualifications, advisors are better equipped to offer bespoke financial strategies that consider each client’s unique circumstances, goals, and risk tolerance. This personalized approach is fundamental to achieving long-term financial objectives, from wealth accumulation to retirement planning and beyond.
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