Securities Rule 151 - Benefits of Licensing

Benefits of Licensing

For Agents

Introduction and background
As a life and health representative, you are already taking stock of your clients' assets and formulating strategies using life and health products to protect those assets and your clients' income stream. Prominent in the arsenal of protection products are Indexed Annuities, and it is likely that you've already recommended them where appropriate.

Briefly, these annuities yield returns on the contributions made to the contract based on the returns of a specified index like the S&P 500, for example. Like other annuities, Indexed Annuities can be purchased from insurance companies and their agents. While each annuity is different as per the terms of its contract, insurance companies will commonly offer a minimum return so that some of the downside risk is dispensed in the event the index does not perform as expected. The annuity portion of the contract protects a buyer's income stream, while the investment portion of the contract provides the potential for investment growth. The appeal of the product in terms of growth potential is just as much, if not more, than the traditional security.

Herein lies the root of the Securities and Exchange Commissions proposed Rule 151a: purchasers of Indexed Annuities are exposed to investment risk, namely the performance of the underlying security index, and, in fact, are willing to assume that risk for the promise of market related gains. In essence, it is the individual purchaser who underwrites the securities-linked portion of the return, not the insurance company. This is fine where appropriate, and buyers of Indexed Annuities often choose these investments for the same reasons they open brokerage accounts and invest in other securities products. SEC Rule 151a would require your registration with the securities industry in order to sell these products.

Why you and why now?
As noted earlier, you are already in a coveted position of trust with your client base, attending to their insurance and income stream protection needs. Why not capitalize on the work already vested in each of your clients, for their benefit and your own? If you are in the business of protecting assets, then surely you would want to assist in adding to them and growing them for your clients. In addition to the products and services already offered, enhancing the offerings to develop and execute a more complete financial package for their financial well being will pay dividends in the future. Being able to utilize products like stocks, bonds, mutual funds, and variable insurance products lends itself neatly to expanding your clients' asset bases and building their wealth. Just as important, your value to them, as exemplified by the trust already placed in you, increases exponentially. The ability to build and expand your practice also increases when your client base can turn to you for all of their financial needs.

While no assumptions can be made regarding the outcome of the resistance to the proposed SEC rule, it is likely that your registration with the Financial Industry Regulatory Authority (FINRA) will soon be required. At a minimum, the Series 6 license or the Series 7 and the Series 63 licenses (to accomplish registration at the state level) will be needed in order to sell Indexed Annuities.

Look at the options

Series 6 – The Investment Company Products / Variable Contracts Limited Representative Examination
The Series 6 license allows holders to transact a member's business in:

redeemable securities of companies registered pursuant to the Investment Company Act of 1940;
securities of closed-end investment companies registered pursuant to that act during the period of original distribution but not when trading in the secondary market; and
variable contracts and insurance premium funded products issued by insurance companies.

For example, individuals who register via this limited license will be able to sell Mutual Funds, Variable Insurance, and Variable Annuities. The exam topics include:

Securities Markets, Investment Securities, and Economic Factors
Securities and Tax Regulation
Marketing, Prospecting, and Sales Presentation
Evaluation of Customers
Product Information-Investment Company Securities and Variable Contracts
Opening and Servicing Customer Accounts

This qualifications exam contains 100 multiple-choice questions, and the applicant is given 2 hours and 15 minutes to complete it. The successful candidate will score at least 70%. This is a limited license because the sales of other securities, such as equities, fixed income (bonds), derivatives (options), and others, are not accommodated with this license. This may be a good reason to consider the next solution.

Learn more about the Series 6 Study Solution

Series 7 – General Securities Representative Examination
The Series 7 qualification allows a holder, known as a General Securities Representative, to sell most types of securities products. These would include corporate securities, both equity and debt instruments, municipal securities including municipal funds, options contracts on equities as well as options on foreign currencies, debt instruments and indices, direct participation programs, investment company products such as mutual funds and exchange traded funds in both the primary and secondary markets, and variable contracts such as annuities. Virtually the only exceptions would be commodities and futures, which require a Series 3 license.

A more comprehensive exam in both product scope and depth than the Series 6, the Series 7 exam is geared toward the critical functions that a Registered Representative (RR) would be expected to perform. Generally, these cover prospecting for and handling new accounts, with sub-topic focus on investment risk as it relates to all products covered in the exam, taxation, retirement plans, and packaged securities such as collateralized mortgage obligations. Specifically, the critical functions of a RR are:

Seeking business for the broker / dealer through customers and potential customers.
Evaluating customers in terms of financial needs, current holdings, and available investment capital.
Providing customers and prospective customers with information on investments and making suitable recommendations.
Opening, transferring, and closing customer accounts and appropriate account record maintenance.
Explaining the organization, participants, and functions of various securities markets and the principal factors that affect them.
Obtaining and verifying the customer's purchase and sale instructions, entering orders, and follow-up on completion of transactions.
Monitoring the customer's portfolio and making recommendations consistent with changes in economic and financial conditions as well as the customer's needs and objectives.

This exam contains 250 multiple-choice questions, and the applicant is given six hours to complete it. The required score is 70% or better.

These tests, administered by FINRA, are federal exams, and unlike the state-specific exams you may have encountered in the insurance industry, these are the same in every state. While broker / dealer sponsorship by a FINRA member or a member of another self-regulatory organization (SRO) is required, there are no other prerequisites to take the qualification exams. Also note that passing these exams does not, in effect, register the applicant. Passing the exam is simply one of the criteria that must first be met in order to be registered, which is accomplished through the applicant's broker / dealer when the appropriate forms are filed.

While we fully expect you will be successful with Kaplan's study solutions for these exams, time is an important factor in being ahead of the curve. There are waiting periods if you do not pass the exams–30 days after the first and second unsuccessful attempts, and at least 180 days after the third attempt and any others beyond the third attempt. Why wait? Can you think of a good reason not to invest in the well being of your clients, your practice, and yourself? Let Kaplan help you do it now!

Learn more about the Series 7 Study Solution

Series 63 – Uniform Securities Agent State Law Exam
The Series 63 qualifications exam is required in most states for holders of the Series 6 or 7 licenses and is administered by the North American Securities Administrators Association. This securities license entitles the holder to solicit orders for any type of security in a particular state. The exam covers the principles of state rules and regulations for securities as reflected in the Uniform Securities Act (USA), which is the core substance of this exam. The act is not a federal law, but it can best be described as a group of state laws based on a model created and adopted by those responsible for administering securities laws within a particular state, namely the Administrator.

The four content areas of the Series 63 are:

Registration of Persons
Securities
Business Practices
Administrative provisions and other remedies

This exam, which allows 1 hour and 15 minutes for successful completion, contains 60 multiple-choice questions and requires a 70% or better score to pass. The exam leans toward the legal definitions under the USA regarding who is an administrator, a person, an agent, a broker / dealer, an investment advisor (IA), or an investment advisor representative (IAR), as well as what is or is not a security.

Once a candidate decides to move forward with the Series 6 or Series 7, the Series 63 will need to follow and should indeed go hand-in-hand in order to complete a candidate's securities license registration. Kaplan offers new and innovative Series 63 solutions to do just that.

Learn more about the Series 63 Study Solution