The Investment Scientist

Financial Advisor Licenses: Series 65 vs Series 7.

Posted on: November 20, 2013

My Financial AdvisorWhen I am approached by a prospective client, the question they always ask without fail is “Are you properly licensed?”

This is actually the wrong question. The right question should be, “Which license do you have?”

Generally, there are two types of licenses for people who call themselves a “financial advisor.” People who passed the series 65 test and people who passed the series 7 test. The nature of these two licenses are as far apart as heaven and earth.

Series 7 is a securities license. People who have passed this test can legally be a broker. They are actually prohibited by law to give financial advice, except incidental to the financial products they are selling.

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A financial advisor with a series 7 license can receive third party payments like kickbacks, commissions etc in conjunction with the products they sell you. They are not required to put your interest first as they are not your fiduciary. Legally they abide by a much lenient “suitability standard.” That is, if they think the product is suitable for you, irrespective of the cost, they are legally off the hook.

All of Morgan Stanley, Merrill Lynch and other Wall Street firms’ financial advisors are required to pass the series 7 license.

Series 65 is an advisor license. People who have passed this test are legally called registered investment advisors or RIAs. An RIA’s compensation is in the form of fees paid directly by the client. He or She is prohibited to receive any third party payment unless disclosed to and approved by the client first.

When searching for a financial advisor, it’s crucial to find out what licensure he or she has. Don’t use a broker as your financial advisor unless you’re in the habit of letting you friendly neighborhood used car salesman hand pick your vehicle purchases.

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1 Response to "Financial Advisor Licenses: Series 65 vs Series 7."

*Series 66* This Series 66 is the newest exam offered by NASAA. In essence, it combines the Series 63 and 65 exams into one 150-minute exam. This test contains no investment material, as the Series 66 license is only available to candidates that are already Series 7 licensed.

On Wed, Nov 20, 2013 at 7:18 PM, The Investment Scientist wrote:

> The Investment Scientist posted: “When I am approached by a > prospective client, the question they always ask without fail is Are you > properly licensed? This is actually the wrong question. The right question > should be, Which license do you have? Generally, there are two types of > l”

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

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