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  • FINRA considers making Series 7 scores public

    October 3, 2014 by Nick Thornton

    Is FINRA considering publishing registered brokers’ Series 7 licensing scores in an effort to increase disclosure to investors?

    That’s what Robin Traxler, vice president of legislative affairs at the Financial Services Institute, reportedly recently told a room full of brokers at the Financial Advisor Summit.

    What would that mean for registered investment advisors?

    For most, nothing at all. RIAs are compensated on a fee-for-service basis, not on commissions generated from individual security sales. The Series 7 license authorizes brokers to sell securities on a commission basis.

    But for hybrid RIAs like Mike Emerson, who operate as both a 3(38) fiduciary services provider and as a Series 7 licensed broker, the possibility of having his Series 7 score made publicly available is a bit laughable.

    Emerson broke into the financial services industry the way a lot of RIAs do; a wirehouse put him on payroll, sponsored him to take his Series 7, and gave him several months to do nothing but study for the exam.

    The Series 7 is no walk in the park. FINRA does not disclose the fail rate for the more than 600,000 brokers it regulates.

    Emerson passed his Series 7 with flying colors (a minimum of 72 percent is required).

    In fact, he did so well that he drew some concern from his manager, who informed the industry rookie that the firm’s data shows that the brokers who score above 90 percent often struggle to produce commissions.

    “I guess their thinking was that the thoughtful candidates didn’t have the killer instinct to go out and generate sales,” said Emerson, with a chuckle.

    Data from Boston-based Cerulli Associates shows that 19 percent of all advisors consider themselves hybrid RIAs, compared to 29 percent who are fee-only RIAs.

    In 2011, hybrid RIAs were the fastest-growing segment of the advisor market, according to Cerulli.

    Emerson said he’d be happy to have his Series 7 score made public. Though he’s not sure it’s an adequate gauge of an advisor’s value.

    He recalls sitting in his manager’s office as a new broker, wondering how his boss could be disappointed in him acing the Series 7.

    “He pointed to two of the biggest producers in the office,” said Emerson. “Guys with big books of business. It had been decades since they’d taken any exam.”

    One of those big producers failed his first shot at the Series 7, said Emerson.

    The other failed twice.

    What FINRA does with Series 7 score disclosure remains to be seen. The regulator, which is funded by the advisory industry, recently amended a proposal that would have required the disclosure of recruiting bonuses given to brokers to their clients. The amendment puts the responsibility on clients to determine what kind of recruiting incentives their financial advisers received.

    Originally Posted at BenefitsPro on October 1, 2014 by Nick Thornton.

    Categories: Industry Articles
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