Important Credentials For Brokers

Brokers sometimes pursue the same credentials of a financial planner. Like a planner, however, no credentials are necessary. A broker, however, must pass exams in order to practice, the basic tests being known as "Series 6" and "Series 7" exams.

Those will not necessarily be much help when it comes to lifetime financial advice, since the typical licensing review course takes only two or three days. Moreover, the exams are more concerned with a broker's technical proficiency -- understanding of investment issues, legal and regulatory requirements -- than with developing a real-world understanding of risk, diversification, and more.

The National Endowment for Financial Education has done several studies that have consistently shown that rookie brokers are trained without a significant emphasis on "understanding a client's overall financial picture and assimilating the role of individual investments within that picture." (That's not a problem, so long as you only want them to facilitate your trades; the minute you want something bordering on planning, it's a problem.)

Until a decade ago, brokers did not have to even undergo continuing education to retain their license, although it is now required at certain anniversaries of licensing.

Smart Investor Tip

Don't be fooled by an advisor telling you he is a "registered representative," a "registered investment advisor," or both.

As such, advanced credentials are a good thing; while there is no substitute for the School of Hard Knocks, you don't want to go through that course while riding on your account.
With that in mind, you may want to look for advanced credentials. Don't be fooled by an advisor telling you he is a "registered representative," a "registered investment advisor" (RIA), or both. The former is a fancy way of saying that someone has passed the exams needed to sell the products they represent; RIA, meanwhile, is not a credential, it's just proof that the advisor has registered. That said, an RIA qualifies as an advisor -- and not just a broker -- so he or she must live up to the fiduciary standard of care; that's a plus, but it doesn't make anyone a more skilled counselor. These credentials will:
By Chuck Jaffe
Chuck Jaffe is a senior columnist and host of two weekly podcasts at MarkWatch. He has also been a guest speaker on several television and radio shows.

Copyrighted 2020. Content published with author's permission.

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