Becoming a Stock Broker
A Stock Broker, or Registered Representative, is a professional salesperson that is licensed with the Financial Industry Regulatory Authority, or FINRA (the body that replaced the NASD, or National Association of Securities Dealers). Despite the trend towards online trading of stocks, commodities, and other securities, a Stock Broker is still an integral part of the securities industry and the relationships with investors that have been developed over the years are crucial to market liquidity and market demand.
Initially, an aspiring Stock Broker requires sponsorship by a broker – dealer firm that is a FINRA member. Trainees are taken under wing and are taught the “rules of the game” as assistants to the licensed representatives. These assistant duties often include prospecting for clients, primarily involving cold calling and other means of marketing. Once a prospect has been identified, the trainee is not allowed to conduct any sales related business. At that point, the prospect is turned over to the licensed Series 7 Broker for a sales pitch with the aim of getting the pre-requisite “Know Your Customer” information under FINRA rules to officially open a brokerage account with the broker – dealer firm.
At the same time, the Stock Broker in training has to study diligently for the Series 7 exam, which is akin to the CPA exam of the Accounting industry or the Bar exam for the legal profession. The Series 7 exam consists of voluminous multiple choice questions on the rules, practices and guidelines that FINRA firms are required to adhere to under the Securities and Exchange Commission. Many of the questions involve client scenarios for trading stocks, what can and cannot be said to clients, mandatory documentation and record keeping, and other operational issues.
It is not uncommon for a future Stock Broker to have to take the several hours’ long Series 7 exam several times before achieving a passing grade. Once an aspirant has passed the Series 7, he or she is qualified for FINRA registration, which includes obtaining fingerprints and other pertinent personal data that will go on the new Stock Broker’s U-4. The U-4 is a FINRA record of every Stock Broker’s licenses, firm affiliations, and citations of any recorded infractions or complaints made, as well as any resolutions and/or remediation’s that were undertaken.
A Series 7 license authorizes a Registered Rep to sell securities, except commodities and futures, to the public. In order to be cleared for selling in any state where the broker -dealer has registered with FINRA, he or she also needs to take the Series 63 exam. Additionally, the Series 65 exam is required for any Investment Advisory services. Having passed a Series 7 is not a prerequisite for taking the Series 65. The relatively new Series 66 exam, which does require a prior Series 7 authorization, is a combination of the Series 63 and 65.
Many firms will charge the fees for taking the somewhat expensive FINRA exams against a Stock Broker’s future earnings production. However, once a Registered Rep has proven him or herself to be a competent sales person and producer, a firm will often absorb the cost of future registrations and licenses, such as the Series 24 for a principal’s license, which is required for anyone acting in a supervisory capacity over other Series 7 reps.
A Stock broker is an indispensable financial professional that serves the public, specifically, people who do not have the time to watch the markets, are intimidated or unsure about how to manage their investments, or who need the advice of professionals that are up to date with the latest news about particular stocks in order to decide when and which to buy and sell. Bonds and other kinds of securities also comprise a Stock broker’s product responsibilities for his or her clients, and need to be monitored as well for interest rate fluctuations and other news events that can affect investment portfolios.