In an era of almost endless information, it’s important for financial advisors to find ways to stand out in the crowd. As an advisor, obtaining the right certification can do more than just allow you to compete, it can be a differentiator for clients who are looking to choose an advisor. However, for independent advisors, choosing the right licensing and designation can be difficult. Depending on an advisor’s existing practice, desired client base, and plans for the future, different licensing combinations are available that can ensure advisors are able to differentiate their offerings and appeal to a wider client base in a competitive market. Learn more about the licenses and designations that RIAs and financial advisors should consider, and how multiple licenses can affect your practice.
The CFP: The Gold Standard For Financial Advisors
Not all financial advisors are financial planners. The “financial advisor” category can include financial planners, insurance agents, brokers, and investment advisors, among others. Certified financial planners, or CFPs, are more specialized, with specific training that allows them to help clients create a holistic financial approach to reach their goals.
For this reason, savvy consumers are increasingly seeking out these knowledgeable, independent fiduciaries to assist them in creating a financial plan. The CFP license has stringent requirements: professionals must hold a bachelors degree and either complete a board-registered educational program or hold one of the following degrees: CPA, ChFC, Chartered Life Underwriter (CLU), CFA, Ph.D. in business or economics, Doctor of Business Administration, or Attorney’s License.
Those seeking to become CFPs must also have 6,000 hours of financial planning experience or 4,000 hours of apprenticeship experience to become certified, and must complete a background check and meet stringent ethics standards. The most important of these ethics requirements is the CFP advisor’s fiduciary duty, the duty of the advisor to put the interests of clients above the advisor’s own interests. In practice, this fiduciary obligation means that CFPs, like other advisors, are paid on a fee basis for advisory services, as opposed to collecting commissions from the trading of securities. CFPs, like other fiduciary advisors, must also provide disclosure of any actual or potential conflicts of interest that might impact the advice they provide.
Series 65 and 66 Licenses
Many advisors who are not also financial planners hold a FINRA Series 65 or 66 license. Individuals who hold these licenses are considered “registered representatives,” and are permitted to give financial advice. The series 65 license is required for advisors, like Investment Advisor Representatives (IARs) who work for RIAs and who wish to provide fee-based advisory services to clients. While most CFPs also have a series 65 license, the series 65 requirement can be waived for professionals who hold a CFP. The CFP designation is more comprehensive, and generally allows advisors to provide more complete financial planning, including in many cases integrating a financial plan with a client’s estate planning and other needs. However, many financial advisors maintain robust practices with a series 65 license or a combination series 7 and 66 license, as outlined below.
The Series 7 License And Potential Conflicts Between RIAs and Broker-Dealers
Another popular and common license for financial advisors is the FINRA series 7 license. Officially known as the General Securities Representative Qualification Examination, passing this exam allows a broker-dealer or advisor to trade and sell almost all investment products, including common and preferred stock, bonds, exchange-traded funds, real estate investment trusts, and options. Broker-dealers who hold this license are qualified to trade and sell securities products on a commission basis, meaning they are compensated based upon the products they sell.
Several commentators have raised questions about whether the series 7 license stands in conflict with the fiduciary obligations of series 65 or CFP licensees. Specifically, they raise questions as to whether the incentives established for series 7 licensees, who are compensated on commission, conflict with the obligations of CFPs and other obligations to always put the client’s interest above that of the brokerage.
That said, many RIAs maintain hybrid practices, with a fee-only fiduciary practice alongside a commission-based broker-dealer one, frequently holding a series 7 license alongside a series 66 one, allowing them to provide fee-based services while also trading securities. Potential conflicts are generally resolved through disclosure and separation between the financial advisor and broker-dealer portions of an advisor’s business. However, it is important for those considering these licenses to evaluate their own relationship to this potential conflict.
Want to Keep the Conversation Going?
Thinking about making the leap to independence, but not sure which licenses are right for you? All of us at Terrana Group welcome the opportunity to consult with you to determine the right platform for you going forward — one that satisfies your long term objectives and is also best for your clients!
Over the course of nearly 30 years, we have consulted on and closed thousands of professional placements for Advisors, nationwide, in most every major city throughout the United States, with client assets transferring exceeding $67 billion dollars. We have built deep relationships with the advisory world’s most sophisticated and notable firms — including Wall Street Brokerages, most Regionals, Boutiques, Banks, Independent Broker Dealers, RIAs and Custodians. Our broad knowledge of those firms and the deals that are currently being offered will ensure that you are being presented with the right firm choice, platform, and the offer which is best for you.
Confidentiality, professionalism, and respect are protocol to our practices and beliefs; we handle each and every step of the placement process with complete communication, keeping you informed while making the process smoother from beginning to end.
We are proud to always be considered as a great asset by our clients because of our proven expertise, many years of knowledge, and acute attention to detail. Financial Advisor Recruiting Services are not all created equal; we guarantee that the TG experience for clients and candidates is always world class.
We are based in Chicago, with a nationwide reach. Let us know you are interested by contacting us today. To get the conversation started, email info@terranagroup.com or give us a call at 312.655.8380 today.
