Should you Let Go of Your FINRA License?

Should you Let Go of Your FINRA License?

finra licenseThere has been a lot of media buzz around the subject of compensation for people working in the financial services sector. Ever since the financial crisis struck, the issue of being paid for managing or dealing with money has been scrutinized like never before.

Many broker dealers registered with FINRA have been abandoning their licenses to become registered investment advisers (RIAs). Not to be outdone, registered representatives are abandoning their Series 7 to become Investment Advisor Representatives with a Series 65. FINRA’s rules for broker-dealers seem to be multiplying exponentially. The FINRA registrations for individuals have made way for licensing pertaining to investment advisory representatives as well.

There are some advantages to this trend of shifting to RIA that seems to be gaining traction in the industry, but:


  • Offer Professionally Managed Portfolios to Clients With A High Net-Worth

With the shift, advisers can either hire a third party money manager or personally manage client assets themselves. The access an RIA has to certain high profile money managers could be very valuable considering most ordinary clients would never have such exclusive access. Bringing a number of managers under one single umbrella seems to be quite possible.

  • More Than One Custodial Service

Advisers can save a lot of time and resources for clients by offering a choice of asset custodian. They can let their clients pick from Pershing, TD Ameritrade or Charles Schwab.

  • Compensation Alignment with Client Interests

Everyone knows that broker dealers have registered representatives who are compensated based on the the activity in the account or based on a sliding scale of greater commission for more complex products. It’s the fundamental way brokers make money, so they have an incentive towards increasing transactions in the account. In an advisory relationship, however, the advisor is compensated in line with the performance the client experiences because the fee is a percentage of the account’s value and not based on activity.

  • Good Performance Reporting

Clients can be updated with quarterly reports about their account’s performance, which clearly show the relative performance as compared to a benchmark.


There are a number of reasons why getting registered as an RIA is a good idea, but the compliance savings may be less than one would expect, an easier job or a consistent revenue stream. The fiduciary standards that need to be met make this a higher hurdle to get over.

The Best Option

Keeping all the advantages in mind, what is the best course of action for an advisor? Try to hang on to both worlds by registering with a firm that can hold your broker dealer license as well as your investment advisory license. Firms that do not offer this sort of flexibility for its advisers may have issues with supervision a little down the line. It is also best for advisers to be able to offer both commission as well as fee based services. In short, you may want to hang on to your FINRA license.

Comments are closed

Copyright © 2014 May Law PC | Disclaimer