Friday, August 28, 2009

Assignment of Contract

Remember that an investment advisory firm has a contract/agreement with their clients that spells out the services provided, the fees that will be charged, how the fees will be calculated, whether the adviser has discretion over the account and many other important features. In this contract there must be a clause that states that the contract can not be "assigned to" another party without client consent. If the adviser has 1,000 clients and the adviser sells out to a bigger player, those 1,000 agreements are not automatically assigned to the new adviser--rather, contracts need to be executed all over again. If the adviser is a partnership, and partners with more than a minority ownership interest are added or subtracted from the partnership, this would also constitute "assignment of contract," requiring new contracts to be signed.

One of my tutoring clients recently discovered this next point the hard way: the prohibition on "assigning" client contracts has to do with an adviser assigning the accounts to a different advisory firm. It does not mean that the adviser is somehow prevented from taking one of their IARs off a client's account and putting a different IAR over it. The client is the client of the advisory firm, remember. An IAR (investment adviser rep) is simply an employee who represents the investment adviser. This is not assignment of contract--it is simply how things work sometimes, especially if the IAR fires off a flaming email to the principals of the firm.

Thursday, August 20, 2009

Series 66 sponsorship

A customer just asked:
We just moved from a broker-dealer firm to an RIA. I have a Series 7 and 63. I have been told that since our RIA is not a member of or registered with FINRA, I cannot take the 66 ... I HAVE to take to 65 because to take the 66 you have to be sponsored by a member firm. Does that make sense? Is it correct?

RESPONSE: before we determine if they're correct, let me ask you this--do you have a preference to take the Series 66 over the Series 65? If so, are you assuming that 100 questions will make the 66 "easier" than the 65? It isn't. It's just a little shorter; it also requires a 71% score to pass, and it has more of a regulatory/legalistic focus compared to the 65.
Okay, so can you sponsor yourself to take the Series 66?
Yes. How do I know? NASAA is in charge of the 65, 66, and 63 exams. At:
We find this:
Do I need to have a sponsor before I take the Series 63, 65, or 66?
No; you can sign up without a sponsor by filing Form U-10 and paying the fee. Indicate “None” or “Not Applicable” where the form requests a sponsoring firm.

Tuesday, August 11, 2009

License Exams

A customer just wrote an email that touches on some issues many candidates also face. She wrote:

Since things are so competitive right now, I thought I'd pass the tests that don't require sponsorship and then worry about the 6 or 7. I'm also working on getting my CPA. Is the 65 a better choice? If I pass the 65 I don't need to pass the 7? I guess my understanding was that ultimately to be licensed I'd need the 6 or 7. Thanks for clearing up the confusion for me. And thanks for the books-they are very helpful!

RESPONSE: to work as an investment adviser representative, you need to pass the Series 65 or 66 exam in order to then register with the state(s). It makes no difference to the state regulators which exam you pass--you just have to have passed one of them within the past 2 years when you register as an IAR or set up your own advisory firm. You're right that you can self-sponsor for either the Series 65 or Series 66 exam, but remember that the Series 66 exam only works if you also have or get a Series 7. While a Series 65 would allow you to register as an IAR or RIA all by itself, the Series 66 would do nothing for you until you pass the Series 7. But, if you do pass the Series 7, you'll be glad you took this route, as opposed to passing the Series 65, then later passing the Series 7 to become a securities agent plus the Series 63, the state law exam. The Series 7 and 66 provide the shortest path to becoming an IAR and a securities agent.

Economic Indicators

If you're studying for the Series 65 or 66 exam right now, you picked a pretty good time. Every day the economy is in the news, it seems, and the news typically uses some of the same terminology you'll see on the test: new unemployment claims, unemployment rate, consumer confidence, corporate profits, GDP, recession, economic stimulus, etc. Try to relate what you're hearing, seeing, and reading in the news with what you're studying for your exam. When the media begins to chatter about new unemployment claims dropping, remember that this is a leading indicator, and it's good news. Recently, it was reported that while new claims for unemployment were dropping, the unemployment rate rose slightly. That's the difference between a leading indicator and a coincident indicator. The number of new unemployment claims was changing before it was being reflected in the number of people who remain on unemployment. GDP, a coincident indicator, has been shrinking, but since the rate of shrinkage has slowed lately, some economists point to this as "good news." The stock market, a leading indicator, has been rising since March, and many people pin their hopes of a recovery on that signal. If it seems that nobody really knows where the economy is headed over the next year or so, there is good reason for that--nobody does. But that doesn't stop anyone from reading the economic indicators and using the numbers to make predictions about the economy. Your job is to know which indicators are leading, coincident, and lagging, and to know their significance. Expect two or three questions on economic indicators on the Series 65 or 66 exam.