Registered Representative (RR)

What is a Registered Representative (RR)

A registered representative (RR) is someone who works for a customer-facing financial company, such as a brokerage firm, and serves as a representative for customers who trade in investment products and securities. Registered representatives may be employed as brokers, financial advisers or portfolio managers.

Registered Representatives must pass licensing tests and are regulated by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). Registered Representatives must also meet the proficiency standard. An investment must meet the suitability requirements outlined in FINRA Rule 2111 before it is recommended by a firm to an investor. The following question must be answered in the affirmative: “Is this investment appropriate for my client?”

Understanding Registered Representatives (RR)

Registered Representatives can buy and sell securities for clients. They are primarily known as transaction-based service providers. To effect these transactions, a registered representative must be authorized to sell the designated securities. They must also be sponsored by a company registered with FINRA.

To obtain a registered representative license for a sponsoring firm, a person must pass the Series 7 and Series 63 securities exams. These exams are administered by FINRA. The Series 7 License allows the Registered Representative to buy and sell stocks, mutual funds, options, municipal securities (“munis”) and certain variable contracts (for example, insurance or annuity) for their clients. As of October 2018, Series 7 candidates must pass the Securities Industry Essentials (SIE) exam before taking Series 7.

The Series 63 license allows the representative to trade variable annuities and unit investment trusts. A significant portion of the Series 63 exam focuses on state security requirements in the United States. Other licenses may also apply to various other types of transactions. IRs may also obtain Series 65 and/or Series 66 licenses to expand their set of licensed activities.

Standards for Registered Representatives

Investors seek Registered Representatives to transact in the capital markets on their behalf as brokers (or “agents”). Registered Representatives generally have access to a full range of market trading capabilities that meet the needs of their investors. They may also be able to execute thinly traded securities or gain access to new security launches.

RR vs. RIA

Registered Representatives are different from Registered Investment Advisors (RIA). Registered representatives are governed by suitability standards while registered investment advisers are governed by fiduciary standards. Registered Representatives are transaction-based service providers. US regulators require registered representatives to ensure that an investment is suitable for an investor given their investment profile. They also ensure that trades are executed efficiently. Investors will be required to pay sales charges determined by the issuers of securities when dealing with a registered representative.

Registered Investment Advisors seek to provide more holistic financial plans and investment services. They offer very different fee schedules and are generally based on fees based on assets under management. Registered investment advisers are governed by fiduciary standards that go beyond standard suitability. RIAs develop comprehensive financial plans and must ensure the best interest of the client.

RIAs are considered to act in a fiduciary capacity and are therefore held to a higher standard of conduct than registered representatives. This fiduciary standard states that an RIA must always unconditionally put the best interests of the client before their own, regardless of other circumstances.

Identification of a registered representative

Investors seeking the services of a Registered Representative will find a range of options in the investment market. Companies like Charles Schwab offer discount and full-service brokerage services. With Charles Schwab, for example, an investor can place electronic trades at a reduced cost. The discount brokerage service offers a registered representative call center where a client can speak with a broker to execute trades. Charles Schwab also offers full-service brokers who work as account executives for clients and support a wide range of trading activities.

FINRA also offers a service called BrokerCheck. Through BrokerCheck, an investor can research the experience and disciplinary record of brokers and brokerage firms.

Past activities that may disqualify you

Several events could either prevent a person from becoming a Registered Representative or result in the loss of their membership or registration.

According to FINRA, you could be subject to “statutory disqualification” under the Securities Exchange Act of 1934 if you:

• Have been found guilty, or have pleaded guilty, or have not contested any crime.
• Have been accused or convicted of a crime involving investments and related to fraud, extortion, bribery or other unethical activities.
• have been involved in arbitration or civil litigation in which you are found to have violated sales practices.
• Has received a final order, from a state securities commission, state authority, federal banking agency, etc., restraining you from associating with that authority or engaging in services securities, insurance, banking and other financial services.
• Engage in fraudulent, manipulative or deceptive conduct that violated applicable laws or regulations.
• Have a revoked or suspended registration from an accountant, attorney, or federal contractor role.
• Filing for bankruptcy in the last 10 years.
• Misrepresented or omitted important information.

Note that the preceding items are a brief summary of the disclosure matters included in the FINRA U-4 form. FINRA also provides a detailed summary of the statutory disqualification process.