Series 7 vs. 65 AND parking license with BD

[Ted18]

I would appreciate any help. I can't seem to find the answer to this questions efficiently on the net.


What can I sell as a licensed series 7 that I can't sell with a 65? I know variable annuities are one. Any others? I suppose to sell life insurance I need a state license for that.



Second question: do you know of any low-cost BD's that will sponsor me for either of these exams for a small fee, and give me a lot of leeway (allow me to essentially park the license) with respect to production in the early years for a small fee? I plan on paying for the costs of the exam itself and for the prep materials.



Thanks very much!

[Ted18]

Ok, I got the answer to the first part of my post at this site: http://www.investopedia.com/articles/financialcareers/07/securities_licenses.asp


I would appreciate, however, any ideas about the second part of the question (sponsoring and parking).



Thanks!

[the observer]

The second part of your question is simple as well...

Parking licenses is illegal and B/D's are regularly audited by FINRA examiners, who look for this kind of activity.

You will find details in the FINRA manual which is located on line, or search some of the "very" old archives here as I've posted chapter and verse on this multiple times in the distant past.

[Ted18]

Right. After I posted, I ran into information that said "parking" is prohibited. I did not realize that at first, and I can understand the general idea, but what is "parking"? Meaning when does it start and stop in the legal sense.


In other words, as applied to my situtation, I am a CPA going out on my own that would like to include 65-type investment advice (mutual funds) to a suite of tax and accounting services. But, initially, I will not have any clients to provide that to. The primary focus will be on tax and accounting, and I hope that I can persuade clients to move their money over to me. I may have only a handful of clients (or none) after a year, depending on what I am focusing most heavily on.



Now if my intent is to simply retain the license and not do anything with it, then that is pretty clearly "parking." If, however, I have my license, and have few or no clients, but technically offer the service, I am really not "parking" because I have the intent to be in the business, just not as actively as one who performs investment advice 100%.



Does this make sense? Any comments are appreciated.



The question still stands: any suggestions on low-cost BDs that will allow me to take the exam for a fee and not put minimum levels of production over my head?

[Ted18]

Observer,



I searched your posts as you suggested and you posted this back in 2003. Very informative.





the observer wrote:The answer to your question Mike is, unfortunately, parking licenses is illegal and not permitted under NASD regulations:Here is the relevant cite from the NASD Manual:Sec. 1031. Registration Requirements(a) All Representatives Must Be Registered"All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with the Association in the category of registration appropriate to the function to be performed as specified in Rule 1032."It goes on to say:"A member shall not maintain a representative registration with the Association for any person (1) who is no longer active in the member’s investment banking or securities business, (2) who is no longer functioning as a representative, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c)"If you then go down to paragraph (c) of the same section it reads:(c) Requirement for Examination on Lapse of Registration"Any person whose registration has been revoked pursuant to Rule 8310 or whose most recent registration as a representative or principal has been terminated for a period of two (2) or more years immediately preceding the date of receipt by the Association of a new application shall be required to pass a Qualification Examination for Representatives appropriate to the category of registration as specified in Rule 1032."The regulation is clear, if a member registers a representative with the intent to allow that person to avoid re-qualification, they violate this rule. So, if your intent is to park the licenses, noone will be able to help you. Non producing registered representatives will always be questioned in any NASD audit of the firm and it is likely action would be taken against a firm that has a number of non-producing representatives who pay fees for........ something other than transacting business.I recognize pesonally that it's always difficult to decide just how to go about seeking opportunities outside the brokerage industry. "Parking" licenses, however, is not an option.





Thanks very much.


Based on your post, I suppose it is safe to say that I should be given some leeway for a time to produce something, but if I am producing nothing, then I and the BD will at some point be scrutinized. The BD will probably question my lack of activity long before the regulators do.

If this is correct, my original question is: which BDs out there will allow me to work at my own pace for a time and not put minimums on me and not charge too much for using the license?

[the observer]

Based on what I'm reading here, I question why you need a Broker Dealer at all. You've got the Series 7, Depending on which State you reside in you may already qualify for RIA status, or may need a 65, which is really a small hurdle, then just register.

Look at the various exemptions from registration and see if they cover your initial activities. Get a compliance consultant in to help with the paperwork. You'll be a LOT better off than trying to struggle with FINRA, B/D interference and you'll own your business from day one.

Which state are you located in??

[Ted18]

I am in Louisiana. Actually, I don't have any licenses, state or federal, although I am a CFP licensee based on challenge status. My planned business model is as follows:

Offer mutual fund investment services to smaller investors with whom I have a good relationship as their CPA/tax advisor; most likely on a commission basis (2-3%). I realize I can't do everything, so if the client's portfolio gets too large or is too much for me to handle (for example, they need purchase individual stocks or bonds, or reaches such a size that I feel uncomfortable taking on too much liability) I will refer the client to an advisor who does this full- time. Such would be in the best interests of the client.


I will look at exemptions from registration, but my thought (may be wrong) is that this only applies at the state level and only if I am advising on a fee only basis. I may have to look at that again.



Observer, thanks very much.

[Bradly T.]

Ted - based on your post, the RIA only model won't work. You are really looking for a BD with low/no minimums and patience. You don't want a bad BD with no criteria either. Try www.webcpa.com and look for a HD Vest or 1st Global or other BD that specializes in CPA affiliations and allows a grouped or multiadvisor payout that could hook you up with another firm/advisor in your area with low minimums. You will need licensing and a licensing sponsor. The model you're attempting is not new and there are ways to get what you want. Be forewarned, you are mixing compliance and disclosure requirements and you'll need a very good, conservative, and proactive BD. You'll have more ways to violate than most. I'm an advisor within a CPA firm and it's a great fit, there's good business in the model. Best of luck!

[Ted18]

Bradly,


Thanks very much. Your comments are well received and make a lot of sense; from someone apparently doing pretty close to what I plan to do. I suppose a point of my confusion is that I am missing some of the terminology (BD vs". RIA only model"). I will learn that as I go along.



In any case, I will look into those BDs. I found another, Genworth Financial, which apparently also provides LT care insurance, whereas HD Vest does not provide insurance products. Since I provide estate planning, this may dovetail nicely as well.



Thanks again.

[Bradly T.]

Ted - Would not advise Genworth for one reason (and there's more than one): they create and distribute proprietary product line and would diminish your perceived independence. OK, the second one; new regs may create difficulties for insurance or bank owned BDs (this is a big maybe though). OK, third one; they took TARP money and have balance sheet issues which could lead to acquisition for survival (these last two are supposition only and not intended to indict the product line or company).


HD and 1st Global do indeed provide full access to full spectrum of funds, annuities, LTC, DI, Life, private placement, and individual securites, SMAs, and brokerage including managed accounts - they just don't create product or sell from inventory.



The reason I said RIA only won't work for you is simply because you stated you're targeting working class and want to sell product (funds and insurance) which will require a BD and regrep status under FINRA. The RIA is something you can still do for fee only managed accounts or as an IAR (investment advisor rep) under your BDs RIA - either of those requires SEC and/or state registration and regulatory review.



You must be licensed, registered, and affiliated to receive any compensation, including split comp with another rep for either directly selling, referring, or joint work (indeed, make sure your arrangement is at least joint work with same BD as both referral between firms and comp sharing between firms is NOT advised). These hybrid arrangements, while not new or particularly tricky, DO require an excellent compliance department and advisor relationship to guide you into full compliance. Again, this is why you don't want a low end and indifferent BD.



Our model is BD regrep (me and the CPA are fully registered/licensed to split comp) and IAR (more compliance support and less branch liability/cost). We offer full spectrum planning, product, and managed account services to tax/accounting client base and their referrals. I can tell you it will be extremely difficult to wear three hats - tax; planner; investment/insurance rep. You should consider where your passion is. A regrep/IAR with their CPA would be VERY attractive to established CPA firms looking to add financial planning and products/services to their existing business model. There's quite a cultural divide between these professions and your CPA/CFP can bridge that gulf nicely - you know the talk and you're not too "salesy"! CPAs are not impressed (more like terrified) of "sales" people. Your CFP is THE bridge between the two cultures and models. Thousands of CPA practices are now embracing this new business model.



If, on the other hand, taxes is your passion, then by being licensed as a regrep/IAR you can share business and comp with another advisor who specializes in the investment/insurance side for you and with you. You have many choices.