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Selecting An Investment Advisor

This newsletter has been developed to provide insights into the operation of the financial services industry, and to help individual investors make decisions concerning the type of advisement that best suits their needs. While there are many professionals who provide investment advice in one form or another, there are certain credentials and licenses financial professionals should possess before you entrust them with your savings. We will explore the various licenses and certifications to determine which type of professional might be best suited to your needs. Financial Advisor, Financial Consultant, Investment Advisor, Financial Planner, Registered Representative, Stock Broker, Variable Products Agent or Insurance Agent are many of the terms used in the financial services industry to describe the professional duties performed. Fee based or commission based compensation are terms which get thrown into the mix, causing client confusion. In reality, a licensed professional can have all of those titles, perform all of those services, which we just identified, and work in a fee or commission based capacity with a client.

The National Association of Securities Dealers (NASD) is one of the associations which self regulates the securities industry. The Securities and Exchange Commission (SEC) is the government agency which oversees the NASD and the exchanges, such as the New York Stock Exchange (NYSE). The NASD licenses Registered Representatives, while the SEC or individual state bureaus of securities register investment advisors (RIA). Financial Planner, Financial Consultant or other terms used to describe financial services professionals are other ways to describe an RIA. Insurance Agents are licensed by individual state Departments of Banking and Insurance.

If the agent sells variable products, such as variable annuities or variable universal life insurance, they must also have an NASD License. The NASD has many licenses, but many professionals have at least a Series 65, which is an NASD license needed to be a Registered Investment Advisor in many states. This is the minimum, short of having no license at all. In order to be a Registered Representative, the minimum license needed is a Series 6 from the NASD. This entitles a Representative to sell mutual funds, and obtain an affiliation with a securities firm. An insurance license to sell variable products enables the representative to also provide variable annuities or variable universal life insurance. In order to advise and transact stock, bond, REIT and limited partnership sales, as well as mutual fund, ETF's, variable annuity and variable universal life sales, a Registered Representative needs to attain a Series 7 license, as well as a variable life license. By obtaining a Series 63, disclosing all investment advisement relationships to their broker/dealer and by registering with their state Bureau of Securities or the SEC, if assets are over 25 million, a registered representative can have a dual registration as a Registered Representative and Registered Investment Advisor. Once this stage has been reached, an Investment Advisor can demonstrate to a client whether fee based or commission based compensation is best for the client.


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