Do You Have to Have a Series 7 to Be an Independent Fee Based Financial Advisor?

As a financial planner, you help clients achieve their dreams.

A fee-only financial adviser charges the client a flat fee, an hourly fee, monthly or annual retainer or percentage of the assets under management. The states may require a Series 65 test. Certain designations, such as the CFP, substitute. Fee-based planners receive funds from both clients and product providers, and they need to have other licenses.

Identification

The fee-based adviser position requires a license as an investment adviser representative (IAR) in most states to receive compensation from mutual funds and an insurance license for compensation from insurance companies. A passing score of 70 percent is a requirement.

Considerations

While a Series 7 isn't necessary for this position, you have to register under a RIA, Registered Investment Adviser. These are normally broker dealers. A Series 6 and 63 is a requirement in most states for the sale of mutual funds. An insurance license is required to receive compensation for annuities. While you don't need a stockbroker's Series 7 license to receive this type of compensation, the broker dealer may require you have one.

Effects

The regulation of IARs depends on the amount of assets under management. As of July 2011, the SEC regulates all those with more than $100 million dollars under management. If you manage less than $100 million, the state regulates your business. Until July of 2011, the SEC regulates IARs that manage $25 million or more.

Filing Requirements

You'll normally have to file a form ADV if you're a state adviser. If you're an IAR for a broker/dealer, a form U-4 is necessary. You can fill out the form online. Every rep in your office needs to file one. Each state has different requirements for filing, and there is normally a fee to file.

Benefits

While you can become a fee-only financial adviser with fewer requirements, a fee-based adviser gives you more flexibility. The fee-based adviser doesn't have to worry about the potential problem of ancillary commissions that might occur and has a broader range of products to recommend without transferring the actual sales process to another person. As with the fee-only planner, you do have to provide clients with a list of fees for your services.

References

• Morning Star: The Difference Between Fee-Based and Fee-Only AdvisorsEsther Pak, January 18, 2011
• NAFEP: How The Financial Planning Industry Works 1999-2007
• Registered Investment Advisor.com: Wealth Manager vs. Registered Rep
• Indiana Securities Division: What's What in the Financial Services Industry

Resources

• Seciurities Exam Preparation: How to be a Registered Investment Adviser
• FINRA: Electronic Filing Form U-4