Investment Manager: Licenses Required To Manage Money

Investment managers are individuals or organisations that handle activities related to financial planning, investing, and managing a portfolio for their clients. While there is no specific licensing requirement for financial advisors, they usually need various securities licenses to sell investment products. The licenses needed depend on the products being sold and the method of compensation.

In the US, there are four main types of investment licenses: Individual or Personal Investment, Corporate Financial Investment, Investment Banking License, and Legal Entity Investment. To obtain an individual investment license, for example, one must pass the Series 7, Series 63, Series 66, or Series 9 exams.

Hedge fund managers, a type of investment manager, do not need a specific license to operate. However, they may need a Series 65 license to register as an investment advisor, depending on the state. Additionally, they will need to pass the FINRA Series 7 and state regulatory exams.

Do investment managers need a Series 7 license?

Investment managers are individuals or organisations that handle activities related to financial planning, investing, and managing a portfolio for their clients.

In the US, there are four types of licenses that are required to sell investment products: Series 6, Series 7, Series 63, and Series 65.

A Series 7 license is also known as the General Securities Registered Representative License. It allows the holder to sell a broad range of securities, including corporate stocks and bonds, municipal bonds, mutual funds, variable annuities, options, direct participation program (DPP) partnerships, and packaged securities.

To obtain a Series 7 license, you must take and pass the SIE exam, secure a sponsorship from a FINRA member firm or self-regulatory organisation (SRO), study for and pass the Series 7 exam, which consists of 125 multiple-choice questions to be completed in 3 hours and 45 minutes, with a passing score of 72%.

While a Series 7 license is not a requirement for all investment managers, it may be beneficial or necessary depending on the specific role and responsibilities. For example, hedge fund managers who oversee investor money are required to pass the FINRA Series 7 exam. Additionally, some states set a Series 7 license as a prerequisite for obtaining a Series 65 license, which is often required for investment advisors.

Therefore, while a Series 7 license may not be mandatory for all investment managers, it can be a valuable credential for those seeking to work in the financial services industry, particularly in roles involving trading and investment advice.

Do investment managers need a Series 65 license?

Investment managers need a range of licenses to operate, and the specific requirements vary depending on the state in which they are registered and the type of investments their fund makes.

One of the licenses that investment managers may need to obtain is the Series 65 license. The Series 65 is an exam and securities license required for individuals to act as investment advisers in the US. It is designed by the North American Securities Administrators Association (NASAA) and administered by the Financial Industry Regulatory Authority (FINRA). The Series 65 exam, also known as the Uniform Investment Adviser Law Examination, covers laws, regulations, ethics, and other topics essential to the role of a financial advisor.

The Series 65 license is particularly relevant for investment managers who provide advice on ERISA-regulated retirement accounts and those who are compensated with fees instead of commissions. Obtaining this license enables investment professionals to function as Investment Adviser Representatives (IARs) in most states. As an IAR, advisors must act in a fiduciary capacity, offering investment advice to clients for a fee.

The exam for the Series 65 license consists of 130 multiple-choice questions, and candidates have 180 minutes to achieve a passing score of at least 70%. Topics covered in the exam include economic factors, investment vehicle characteristics, client investment recommendations, laws, regulations, and guidelines, including the prohibition of unethical business practices.

While the Series 65 license is a common requirement for investment managers, it is important to note that licensing requirements may differ based on the state in which the manager operates and the specific nature of their fund. Some states, such as California, Texas, Washington, and Colorado, have specific requirements for investment adviser registration. Additionally, hedge fund managers may need to obtain additional licenses, such as the Series 7 or Series 3, depending on their activities and the size of their fund.

What are the requirements for investment managers in California?

To become an investment manager in California, you must register as an independent investment adviser (IA) firm or as an investment adviser representative (IAR) with an existing firm. California's Securities Regulation Division of the Department of Corporations and the US Securities and Exchange Commission (SEC) oversee the registration process.

The requirements differ depending on whether you are registering at the state or federal level. State-level registrants are defined as IA firms that manage less than $100 million in client assets, while federal-level registrants manage more than $100 million.

State-level registration requirements:

• Gain access to FINRA's Web-based systems by submitting Entitlement Forms and paying the required fees.
• Register all of the firm's IARs by submitting Form U-4 through the Central Registration Depository (CRD).
• Complete and submit Form ADV through the IARD, providing detailed information on the education and experience of the investment advisers, the firm's investment philosophy, and fee structure.
• Mail the following documents to the Department of Corporations: a statement of citizenship and samples of contracts that will be used with clients. If your firm will hold custody of client funds, include a balance sheet.

Federal-level registration requirements:

• Register with the SEC if your firm has assets under management of at least $100 million or provides investment advice to a registered investment company.
• If your firm does not meet SEC criteria, it must be registered or licensed by California unless otherwise exempt.

Additional requirements for both state and federal-level registrants:

• Complete the necessary exams. The Series 65, Uniform Investment Adviser Law Examination, is required for financial advisors compensated with fees instead of commissions. Alternatively, you can take the Series 7, General Securities Representative Examination, in combination with the Series 66, Uniform Combined State Law Examination.
• Maintain ongoing renewal and updates, including an annual update to Form ADV and payment of an annual renewal fee.

It is important to note that the requirements for investment managers may vary, and you should refer to the official sources for the most up-to-date and comprehensive information.

What are the requirements for investment managers in Texas?

To become a financial advisor or investment manager in Texas, there are a number of requirements and steps to follow. Here is a detailed guide on the requirements for investment managers in Texas:

Education

First, it is recommended to obtain a degree in a relevant field, such as finance, accounting, or business. A four-year degree is common among professionals in this industry. This educational background will provide you with the knowledge of financial markets necessary to advise clients effectively. Additionally, consider pursuing a professional certification such as a Chartered Financial Consultant (ChFC) or Certified Financial Planner (CFP) designation. These certifications can enhance your resume and demonstrate your expertise.

Registration

The next step is to register either as an independent investment adviser (IA) firm or as an investment adviser representative (IAR) of an existing firm in Texas. This registration process is handled by the Texas State Securities Board or the Securities and Exchange Commission (SEC), depending on the amount of assets under management.

If your firm manages over $100 million in client assets, it will be federally registered with the SEC. For firms managing less than this amount, registration is done at the state level through the Texas State Securities Board. The registration process is completed electronically through the Investment Adviser Registration Depository (IARD) system. There are initial filing fees associated with this process, including a $275 fee for the firm and $285 for each IAR in the firm.

Examinations

To become a licensed investment manager in Texas, you must also pass the required examinations. The specific exams you need to take depend on your qualifications and experience. The Series 65, Uniform Investment Adviser Law Examination, is commonly required. Additionally, the Series 7, General Securities Representative Examination, and the Series 66, Uniform Combined State Law Examination, may be necessary. It is important to note that exemptions from these exams are available for individuals with certain professional designations, such as CFP, CIC, or CFA.

Ongoing Renewal and Updates

As an investment manager in Texas, you must stay compliant by renewing your registration and updating your information annually. This process is typically completed through the IARD system by the December 31st deadline each year. Renewal fees apply, including Texas's renewal fees of $270 for firms and $275 for each individual IAR. Additionally, you may need to pay renewal fees for other states in which your firm or IARs have clients.

Compliance and Record-Keeping

Investment advisers in Texas must also maintain proper books and records to comply with regulatory requirements. The location of your principal place of business will determine the specific record-keeping requirements you need to follow. Additionally, there may be ongoing reporting obligations, such as annual updates to Form ADV, which discloses relevant employee data, fee structures, and investment criteria to prospective clients.

Other Requirements

There are additional considerations and requirements for investment managers in Texas, such as the need to register with FINRA (Financial Industry Regulatory Authority) and the potential impact of criminal history on your registration application. It is important to carefully review the Texas Securities Act and the rules of the Texas State Securities Board to ensure compliance with all applicable regulations.

What are the requirements for investment managers in Washington?

To work as an investment manager in Washington state, individuals must meet specific requirements set by both federal and state regulations. These requirements ensure that investment managers are qualified, ethical, and knowledgeable about the complex world of investments and financial management. Here's an overview of the key requirements for investment managers seeking to operate in Washington:

Licensing and Registration: In Washington, investment managers are generally required to register as investment adviser representatives (IARs) with the Washington State Department of Financial Institutions (DFI). This registration process typically involves submitting a Form U4, which includes background information, employment history, and disclosure of any disciplinary events. Along with this, applicants must also complete and submit a Form ADV, which is a detailed document outlining the investment adviser's business practices, fees, and potential conflicts of interest. This form provides transparency to potential clients and regulatory bodies.

Education and Examination: While Washington doesn't mandate a specific degree, investment manager aspirants are generally expected to hold at least a bachelor's degree in a field related to finance, economics, or business administration. Advanced degrees, such as an MBA or a master's in finance, can enhance employment prospects and demonstrate a strong understanding of the field. Additionally, passing the Uniform Investment Adviser Law Examination, also known as the Series 65 exam, is a common requirement. This exam tests knowledge of securities, investment advisory activities, and ethical practices.

Experience: Washington's investment manager aspirants are typically required to have a certain level of relevant work experience. This can include internships, apprenticeships, or entry-level positions in the financial industry. The amount of experience needed may vary, but it generally ranges from one to three years, ensuring that investment managers have practical knowledge and a solid understanding of the industry.

Ethical Standards and Disclosure: Maintaining high ethical standards is crucial for investment managers in Washington. They are expected to act in the best interests of their clients at all times and to provide honest and transparent advice. Any potential conflicts of interest must be disclosed, and investment managers should avoid activities that could compromise their integrity. Investment managers are also required to keep their clients' information confidential and to manage their investments diligently.

Continuing Education: To stay updated with the latest industry developments and maintain their licenses, registered investment managers in Washington must typically complete continuing education (CE) requirements. These requirements vary but often include a certain number of hours of approved CE courses every year or over a specific period. The courses cover various topics, such as ethical practices, new regulations, investment strategies, and industry trends, ensuring that investment managers remain well-informed and competent throughout their careers.

Bonding and Insurance: In some cases, investment managers in Washington may be required to obtain a surety bond as part of the registration process. This bond protects clients in case of any misconduct or unethical behavior by the investment manager. Additionally, maintaining adequate professional liability insurance is often recommended to protect against potential risks and liabilities associated with providing investment advice.

By fulfilling these requirements, investment managers in Washington can ensure they comply with the necessary legal and ethical standards. It is important for individuals to stay informed about any changes in regulations and to work closely with the relevant regulatory bodies to maintain their status as registered investment adviser representatives in the state.

Frequently asked questions