Brokerage in Securities
When the securities markets began to take shape in the late 1700s, buyers and sellers of stock would typically meet in person to negotiate purchases and sales and to exchange share certificates and cash consideration. As the markets matured, the role of buying and selling securities was transferred to brokers and brokerage houses that take and execute orders to buy and sell securities from investors.
Misrepresentations and abuses in the securities brokerage industry led to the adoption in the United States of the Securities Act of 1933 and the Securities and Exchange Act of 1934, which together formed the regulatory framework in which brokers now operate. Securities brokerage is largely a self-regulated industry that is administered by the Financial Industry Regulatory Authority (FINRA), which issues brokerage licenses and monitors regulatory compliance.
FINRA offers several different licenses, each of which enables brokers to offer services with different businesses and investments. Brokers carry a Series 6 license, which allows the broker to facilitate the buying and selling of packaged investments such as mutual funds and variable annuities, and a Series 7 license, which is the general securities representative license that authorizes brokers to manage transactions in almost every individual type of security.
A broker might also carry a Series 63, or Uniform Securities Agent license. Individual states in the United States generally require brokers to carry this license in order to transact brokerage functions within a state. Financial planners and advisors that offer investment and wealth management advice in exchange for hourly fees typically carry a Series 65 license as well.
In the United States, the individuals that hold these licenses must also register with an authorized broker-dealer. Separately, individuals are authorized to hold themselves out as Registered Investment Advisors if they meet certain criteria and are properly registered in the states in which they conduct business.
Brokerage licenses are mandatory for individuals and firms that are actively buying and selling securities on behalf of or upon orders from third parties, but they are not required for individuals or firms that are buying and selling securities for their own accounts. Many unlicensed consultants also offer financial planning advice without running afoul of securities licensing requirements. Questions over whether a license is required are generally a function of whether an individual is purchasing or selling securities on behalf of another party, and whether the individual is offering specific categories of advice regarding the purchase and sale of securities.
The securities brokerage industry is highly regulated, and most participants in the industry will know whether their products or services require individual advisors or the firm that employs them to maintain licenses to provide specific services. The absence of a license is not an indication that a firm is not in compliance with applicable regulations, and in fact, many firms that offer financial consulting services to specific groups of investors legitimately do so outside of brokerage licensing requirements. If any transactions or activities which they recommend require the services of a licensed broker, those firms generally maintain alliances with brokerages that fulfill the functions that require licensing.