How to Become a Financial Advisor | Registered Investment Adviser | Investment Adviser Representative

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Financial industry research firm, Cerulli Associates, conducted a study showing that as of the beginning of 2010, independent registered investment advisers tripled their assets under management to a collective $1.7 trillion during a single 10-year period. This has caused the biggest brokerage and investment advisory firms to take notice, even as their salaried advisers continue to manage some $13 trillion in client assets.

A 2010 survey by TD Ameritrade published in the Wall Street Journal found that investment advisory firms are seeing a major increase in assets, with 70 percent having experienced growth in the six months leading up to the report. The survey revealed that 64 percent of new inflows were coming at the expense of larger broker dealers, often referred to as wirehouses. Not becoming a financial advisorsurprisingly, the survey showed that 77% of investment advisers expressed a high degree of satisfaction with their career.
The industry as a whole has experienced explosive growth and, according to the U.S. Bureau of Labor Statistics, is expected to see a 30% increase in the number of jobs over the next eight years as investment markets become trickier to navigate and consumers look to professionals for help with managing their investment portfolios.

Investment Adviser Career Paths

The most common path to becoming an independent investment advisor is to first work as an investment adviser representative (IAR) at another firm. Using this path, the advisor gains valuable experience working under a seasoned IA before joining the rapidly growing arena of independent advisory firms. After the IAR gains experience and builds a client base, they may elect to open their own practice.

Advisers who go independent often continue to work with some or all of their existing clients in their newly formed firm. This is a win for clients who usually prefer to continue working with the advisor they’ve grown to trust, while also allowing these independent advisers to establish their new business with an existing client base, which should generate enough income to get their businesses off the ground.


Steps to Establishing an Independent Investment Adviser Firm

  1. Become certified as an IA by passing either the Series 65 exam by itself, or the Series 7 exam along with the Series 66.
  2. Choose a Custodian. Most custodians will not take on advisors without a significant amount of assets under management but for the IA who is starting without a client base, some discount brokers will offer custodial services.
  3. Establish a Limited Liability Corporation. An LLC separates your business assets from your personal assets and is often required for advisers that will be acting as custodians. Although there are other corporate designations, an LLC is the easiest and cheapest to set up and for most advisors who function as the sole owner of a firm, an LLC is the best choice. Each state has an office that handles business registration, usually associated with the Secretary of State’s office.
  4. Establish an investment adviser registration depository (IARD) user account. All independent advisers are required to register with the IARD. This is an electronic system through which state and federal IA registration is processed.
  5. Find a custodian. A custodian is an outside brokerage firm that holds client funds for investment advisers, and which often acts as a broker dealer. Most custodians have a minimum amount of assets under management that IAs must have before the custodian will take them on. Some, however, accept IAs without an existing client base.
  6. Complete Form ADV. Form ADV is a 73-page disclosure document that is designed to tell potential clients everything they would want to know about an independent investment adviser firm. Part I can be completed online. The SEC requires part II to be completed in hard copy. The registration process can be time consuming and difficult which is why many RIAs hire consultants to prepare documents for them.
  7. Satisfy additional State Requirements. In addition to these steps, individual states may have additional requirements for registration.

Steps to Becoming an Investment Adviser Representative

Those interested in becoming financial advisors will make the decision to either go independent by establishing an investment advisory firm of their own, or to pursue employment as investment adviser representatives (IARs) with an existing investment advisory firm. Investment advisers who secure employment with existing firms have the benefit of working to serve a well-established client base without having to worry about paying the additional expenses that come with operating a business.

Independent advisers have the benefit of running their firm in a way that fits their goals and once the practice gains a healthy client base, independent IAs have the potential to earn much more than they would as IARs working with an existing firm.

Most investment advisers begin as investment adviser representatives of existing IA firms by servicing smaller accounts, then as their careers progress and they become more experienced, they take on accounts of higher net worth clients.

  1. Register for and pass either the Series 65 exam by itself, or the Series 7 in combination with the Series 66 exam. Some IAs will take on junior advisers without certification and later pay for them to take the appropriate exams.
  2. Register through the IARD. The IAR’s firm will use their IARD account to register the IAR as a representative of the firm.
  3. Additional State Requirements- There may be additional registration requirements depending on the state or states where the IA firm is registered. The firm will assist the IAR in completing these regulatory requirements.

Examination

Perspective IAs sometimes have the misconception that they have to be sponsored by an existing firm in order to become an IA. In order to serve as an investment adviser, state and federal regulators require that candidates hold the Series 65 license by itself, or the Series 7 in conjunction with the Series 66 by passing the related exams. Only the Series 7 exam requires sponsorship.

All exams are computer based. In the event that the exam(s) is not passed on the first attempt, candidates must wait 30 days before scheduling to retake the exam(s).

Series 65

The Series 65 Uniform Investment Adviser Law Examination exam is designed to be a self-study exam. There are a variety of study materials available including study manuals, exam preparation software and online or traditional classroom instruction.

The Series 65 exam is a 140 question test with 130 questions counting towards the final score. The other 10 questions serve as pretest questions allowing FINRA to pilot questions that may appear on future exams. The candidate has to successfully answer 94 of the 130 questions making the minimum percentage for passage 72%. The test must be completed within three hours.

Series 7 and Series 66

The Series 7, formerly known as the General Securities Representative Qualification Examination is a 250-question test administered in two, three hour blocks. Like the series 65, the Series 7 has 10 questions that serve as pretest questions allowing FINRA to pilot questions that may appear on future exams and the minimum passing score is 72%

The Uniform Combined State Law Examination, also called the Series 66 exam, is similar to the Series 65 but because the Series 7 has testing overlap with the 65, the Series 66 was redesigned to test the additional topics found on the Series 65 without covering the product, analysis, and strategy questions which are tested on the Series 7. The Series 66 is a 100-questions exam with 10 pretest questions. The candidate is allowed 150 minutes to complete the exam, and a passing score of 72% is required.

The Series 7 exam is often regarded as considerably harder than the Series 65 and serves a slightly different person. Those passing the Series 7 and 66 exams may become registered representatives working for established broker dealer firms but also qualifies them to act as an investment adviser. The Series 65 is most often the choice for those who plan only to offer investment advice and who do not plan on engaging clients in the sale of securities.

Elective Certification

Once investment advisors gain three to five years of experience in the industry, many will go on to gain more rigorous certification and expand their practices to offer more comprehensive financial planning services. The Certified Financial Planner (CFP) designation is the best recognized elective certification of this kind. According to the Certified Planner Board of Standards, 85% of people searching for a financial advisor found the CFP designation to be “very important” or “extremely important.”

Becoming a CFP requires meeting two educational requirements: financial planning education in almost 100 topics (the topic list) and at least a bachelor’s degree, or its equivalent from an accredited college or university. The degree can be in any subject, and completed after taking the CFP exam.

There are three ways for applicants to meet the financial planning education requirement:

  • Successful completion of a CFP board-registered program (programs are available through various institutions)
  • Challenge status: Possession of one of these certifications or degrees:
    • Ph.D. in economics or business or a Doctor of Business Administration from a regionally accredited U.S. university or college
    • Chartered Financial Analyst (CFA)
    • Chartered Financial Consultant (ChFC)
    • Chartered Life Underwriter (CLU)
    • Licensed attorney or licensed Certified Public Accountant (CPA) (the license can be inactive but does require that the licensing board issue a letter indicating the applicant’s good-standing).
    • Transcript review: If an applicant has education in the required topics from a program not part of a CFP board-registered program, a transcript review may fulfill some or all of the educational requirements.

The CFP requires 30 hours of continuing education, including two hours of ethics training, every two years.

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