What Is a Registered Representative?

Posted by Mckenna Duncan on May 11, 2022

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As an investor, you may be confident in your financial acumen and comfortable executing your investing strategy. On the other hand, you may prefer to incorporate the input of a professional investment advisor to a greater or lesser degree, depending on the situation. Circumstances and strategies may change over time, and the investor’s need for professional support may also differ at various stages. Therefore, it's helpful to understand the options available and the differences between the professional advisors you can choose from.

According to FINRA (the Financial Industry Regulatory Authority), the term financial advisor encompasses registered representatives (usually called brokers), investment advisers, financial planners, insurance agents, accountants, and even lawyers. Yet each profession typically has different education, certifications, skills, and experience. Also, keep in mind that some of these individuals have a fiduciary responsibility to their clients, while others need only follow the suitability standard. 

Investment Adviser Representative or Registered Representative?

A registered representative is often referred to as a broker or stockbroker. A registered representative is licensed by FINRA and must pass exams, usually the Series 7 and Series 66 tests which FINRA administers, to qualify to interact directly with clients. An investment adviser representative (IAR) must pass the Series 65 and register with the Securities and Exchange Commission or a state securities agency. One notable distinction is that the IAR has a fiduciary responsibility to their clients, which means they have a duty to put their clients’ interests first. Fiduciary duty is considered a high standard, and IARs typically avoid transaction-based compensation as a result.

Registered representatives follow the suitability standard in FINRA Rule 2111, which requires that the broker has a “reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the [firm] or associated person to ascertain the customer's investment profile." FINRA specifies that the customer profile considerations include:

  •   Customer age
  •   Financial situation
  •   Other investments and needs
  •   Investment objectives
  •   Tax status
  •   Investment time horizon
  •   Investment experience
  •   Liquidity needs
  •   Risk tolerance

 

Exercising Caution When Choosing a Registered Representative

FINRA offers investors a free online search tool called BrokerCheck. The service allows investors to find information about a broker or brokerage. BrokerCheck provides information about whether the individual or firm is registered correctly and offers a look at an individual’s employment history, any regulatory actions, complaints, or other issues. There is also a list of barred brokers and formal action history information.

The FINRA website also contains educational resources for investors, including tutorials on investing, investment options, and tips on choosing an investment advisor. One salient section explains the difference between full-service and discount brokerages with respect to the research and recommendations available to the investor client.


Which Type of Advisor is Right for Me?

As mentioned, your need for support may change during your investing life, and the appropriate professional advisor may vary as well. Remember that the registered representative, who follows the suitability standard, might be a better fit for specific recommendations. This type of advisor typically receives payment based on transaction volume rather than outcome, but overall, this advice could be less costly than a registered investment advisor. An IAR is usually compensated according to the amount of assets they manage for you, and they may take a bigger picture view of your portfolio.

 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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