Navigating the World of Financial Planning Licenses and Certifications
Written By Christopher Price
Navigating the world of financial planning can be complex, but understanding the various licenses and certifications required can help individuals make informed decisions about their financial future. A financial advisor can only offer what they are licensed to offer. Therefore, if you think you need recommendations for a certain kind of financial product, it’s important to understand what that advisor can legally provide you.
In the financial planning industry, professionals must obtain specific licenses and certifications to offer a range of services to their clients. These qualifications dictate what products and services they can offer, whether it’s selling securities, providing investment advice, or offering insurance solutions.
Let’s explore the different licenses and what they allow financial advisors to do.
Series 6 License (Investment Company and Variable Contracts Products Representative)
The Series 6 license allows advisors to sell specific types of investment products, including mutual funds and variable annuities. Individuals who obtain this license often work in settings such as banks, credit unions, or insurance companies, where they can offer basic investment products to clients looking for conservative, longer-term investment solutions.
The Series 6 exam focuses primarily on products regulated by the Investment Company Act of 1940 and the Securities Act of 1933. These include mutual funds, variable annuities, and unit investment trusts (UITs). However, holding a Series 6 license does not allow an advisor to sell individual stocks or bonds—those who wish to offer more complex investment solutions typically pursue the Series 7 license.
The Series 6 is often considered an entry-level license for individuals who don’t plan to engage in broader securities trading or more complex investment products but still wish to help clients with basic investment needs.
Series 7 License (General Securities Representative)
The Series 7 license is much broader than the Series 6. It allows advisors to sell a wider range of securities, including stocks, bonds, mutual funds, options, and other securities. This license is required for individuals who want to work as general securities representatives or stockbrokers, offering a more comprehensive range of investment solutions to their clients.
Passing the Series 7 exam enables an advisor to engage in broader securities trading, making this a key license for financial professionals who want to offer diversified investment portfolios to their clients. However, it’s important to note that while the Series 7 license permits the sale of these securities, it does not allow an advisor to give fee-based investment advice—that requires a separate license, such as the Series 65.
Series 63 License (Uniform Securities Agent State Law)
While the Series 7 license allows an advisor to sell securities, the Series 63 license is required to do so within a specific state. This license focuses on state-specific regulations and laws, ensuring that financial advisors understand the requirements of the state where they operate.
In most cases, individuals who obtain the Series 7 will also need the Series 63 to sell securities in their state. Without the Series 63, an advisor with a Series 7 cannot sell securities, even if they are licensed to offer them under federal regulations. This means the Series 63 is a critical license for advisors who plan to operate in a specific state or across multiple states, depending on their client base.
Series 65 License (Uniform Investment Adviser Law)
The Series 65 license allows advisors to provide investment advice for a fee and manage client accounts on a fee-based or fee-only basis. Unlike the Series 6 and Series 7, which focus on selling investment products, the Series 65 is essential for advisors who want to act as investment advisers—meaning they offer advice on managing investments rather than simply facilitating transactions. The Series 65 is particularly important for financial advisors who operate in a fiduciary capacity, meaning they are required to act in their client’s best interest. It allows an advisor to provide holistic financial planning services, with or without selling securities. For clients who are looking for comprehensive, fee-only financial advice, it’s important to ensure their advisor holds the Series 65 license.
Series 66 License (Uniform Combined State Law)
The Series 66 license is a combination of the Series 63 and Series 65 licenses. This allows an advisor to act both as a securities agent (selling securities) and as an investment advisor (offering fee-based financial advice).
This dual capability is highly beneficial for financial professionals who want to offer a full range of services to their clients—acting both as a transaction-based representative and as an advisor who can help clients craft long-term financial strategies. Advisors who hold this license can effectively operate across state lines and provide fee-based investment advisory services, making the Series 66 one of the more comprehensive licenses in the industry.
Insurance Licenses: Expanding Financial Services
In addition to securities licenses, many financial advisors obtain insurance licenses to offer their clients a broader array of services. Insurance products are often critical components of a comprehensive financial plan, helping clients protect their assets and plan for risks.
Life and Health Insurance License
The Life and Health Insurance License allows advisors to sell life insurance policies, such as term life, whole life, and universal life, as well as health insurance products, including individual and group health plans and Medicare supplements. Life insurance is a fundamental part of many financial plans, providing income replacement and asset protection in case of death.
Property and Casualty Insurance License
The Property and Casualty Insurance License allows advisors to offer property insurance (which covers homes, vehicles, and other properties) and casualty insurance (which covers liability and losses resulting from accidents). This license is typically pursued by advisors who want to provide coverage options for individuals and businesses to protect against risks to physical assets and liabilities.
Variable Annuities License
Advisors selling variable annuities—insurance products tied to the performance of underlying securities—often need both an insurance license and a securities license, such as the Series 6 or Series 7. Variable annuities fall under the category of securities because their value depends on the performance of investment options selected by the client, and they offer tax-deferred growth similar to that of retirement accounts.
Beyond Licenses: What to Consider When Choosing a Financial Advisor
Having the appropriate licenses and certifications is essential for a financial advisor to legally offer certain products and services. However, licenses alone do not determine the quality of advice or service you’ll receive. Here are some key questions to consider when choosing a financial advisor:
1. What Designation Should I Look for in a Financial Advisor?
Look for professional designations like CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Financial Consultant (ChFC®), or Retirement Income Certified Professional® (RICP®). These designations indicate that the advisor has undergone rigorous training and adheres to a fiduciary standard, prioritizing your best interests.
2. How Are Advisors Compensated?
Understanding how your advisor is compensated is crucial. Some are fee-only (charging a flat fee or percentage of assets under management), while others are commission-based (earning money through the sale of financial products). Some use a fee-based model, which is a combination of both. It’s essential to know which model your advisor uses, as it can impact the advice they provide.
3. When Does My Advisor Work as a Fiduciary?
A fiduciary is legally required to act in your best interest. Advisors with the Series 65 license or CFP® designation typically act in a fiduciary capacity. If you want to ensure your advisor is held to this higher standard, confirm when and how they work as a fiduciary.
4. What Financial Services Do I Need?
Do you need comprehensive financial planning, investment advice, or just help with specific products like life insurance? Some advisors are specialists in certain areas, while others offer a full range of services. You may also need a team of specialists to address all aspects of your financial life.
5. What Is My Advisor’s Communication Style and Frequency?
Some clients prefer regular check-ins, while others may need less frequent communication. Ensure that your advisor’s communication style matches your expectations for updates and progress reviews.
6. Has My Financial Advisor Been in Trouble Before?
Research your advisor’s history to see if they’ve had any disciplinary actions or complaints. Websites like FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure are good places to start.
7. What Happens When My Advisor Retires?
It’s essential to have a plan for what will happen when your advisor retires. Will they transition your account to another advisor in their firm? What is their succession plan?
Conclusion
Choosing a financial advisor involves more than just looking at their licenses and certifications. While it’s essential to ensure they are qualified to provide the services you need, understanding how they operate, how they are compensated, and whether they act in a fiduciary capacity will help you make the best decision for your financial future.
By educating yourself on the licenses that define what services financial advisors can offer, you can take the first step in selecting the advisor who is best suited to help you navigate your financial journey.
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