Why Obtain a
Series 65 License and
How Hard is the Exam
By: Roccy DeFrancesco, JD, CWPP, CAPP, CMP
Founder: The Wealth Preservation Institute
Co-Founder: The Asset Protection Society
1
What will be covered in this
presentation?
• How having a 65 will allow advisors:
– to avoid regulatory problems.
– to give more comprehensive advice to clients.
– to generate significantly more income.
• It will introduce to advisors the best marketing
platform I’ve ever seen.
• It will help advisors understand what is on the 65
exam and how difficult it is to pass.
Series 65 Basics
• What’s a Series 65 License?
– A Series 65 License allows an advisor to charge a fee
for managing a client’s money (a “fee-only” license).
– You can think of a Series 65 as an equivalent license
to a Series 7 except that with a Series 65 the advisor
cannot earn “commissions.”
• Series 7 licensed advisors work through Brokers
Dealers.
• Series 65 licensed advisors are Registered
Investment Advisors (RIAs) or Investment Advisor
Representatives (IARs) who work under an RIA.
Why a 65 instead of a 7?
• I personally despise BDs (where Series 7 licensed
advisors work through).
• Why? The list is long.
– Only care about advisors gathering AUM.
– Could care less about the client receiving the “best” advice.
– BDs limit the concepts, products, and investments that a
licensed advisor can offer clients.
– Compliance is a nightmare.
• The next BD I run into that actually cares about the
client receiving the “best” advice will be the first.
• I wrote my book www.badadvisors.com mainly because
of my disdain for BDs.
Continued
• Series 7 advisors typically live in a nonfiduciary/commission ladened world.
• Series 65 advisors are fiduciaries and can’t make
money from the sale of securities.
• Series 7 advisors typically sell loaded mutual funds
and variable annuities.
• Series 65 advisors make money from a money
management fee (and usually will stay away from
loaded mutual funds and fee heavy VAs).
• For most advisors, a 65 is going to get them where
they need to go when helping a client grow their
liquid wealth.
Protection from Regulation
• Everyone remembers 151A when the SEC tried to
regulate FIAs as securities?
• It freaked out insurance agents, IMOs, and
insurance companies.
• While it’s true that 151A is dead for now, the State
Securities Commissions (the bodies that regulate
securities transactions in their states) are picking
up where 151A left off.
• This should concern all non-securities licensed
insurance agents.
Answer the following questions
• Do you need a securities license if you tell a client
– to buy an FIA inside an IRA?
– to take money from a brokerage account to fund an
Equity Indexed Universal Life Insurance (EIUL) policy?
– to move money from mutual funds to fund an SPIA
(Single Premium Immediate Annuity)?
• Most agents would say no, but guess who is starting
to say YES!
• State security departments
Source of Funds Rule
• The SOF rule looks at where the money comes from when
funding fixed products.
• If the money came from the liquidation of a security, that may be
a violation of the SOF rule.
• Have you ever heard of an insurance only licensed advisor
getting in trouble for violating the SOF rule?
• It's happening and insurance agents need to protect themselves.
•
•
– Arkansas Insurance Department Bulletin No. 14-2009 and Iowa
Insurance Department Bulletin 11-4.
– These bulletins says that insurance only licensed advisors cannot
recommend the liquidation of investments/securities to fund a fixed life
or annuity product. A violation will cost insurance agents up to a $10k
per violation in TN and $20k in AR (and potential loss of license).
You will needa a securities license—it is my opinion that in the near
future, ALL insurance agents are going to need some sort of securities
license in order to not run afoul of the SOF rule.
Those that don’t will be stuck with a very small client pool (client who only
have money sitting in CDs or bank accounts).
Generate more income
• Let’s face it, most advisors today are not doing
well or are not doing as well as they would like
financially.
• A very simply way to remedy this it to obtain a 65
license.
• Well, it’s not enough just to get a 65, you need a
65 and a good platform to gather Asset Under
Management (AUM).
The “best” platform I’ve ever
seen
• I’ve been helping advisors market themselves and
provide the best advice to their clients going back
to 1999.
• In all the time I’ve been in the business, I’ve never
seen a marketing platform like the one offered by
www.pomplanning.net.
• In fact, I stayed away from recommending an AUM
platform for over 10 years until I saw the power
and simplicity of www.pomplanning.net.
Marketing
• How hard is it to offer clients the following:
• Multiple tactically managed strategies that have a
proven track record going back 10, 15, 20+ years
that have similar or better returns than the S&P 500
with 70%-80% less risk.
• My favorite manager has not had a down year in 21
years and has had an average “net” rate of return of
8.98% (year ending 2013).
• The Beta on this strategy is .20 (S&P Beta is 1).
• The maximum drawdown of this strategy going back
20-years is less than -1.5% vs. nearly -10% for the
S&P 500.
Income from AUM
• The math is simple and clear.
• 65 licensed advisors typically charge a 1% fee
annually to manage a client’s money.
• The average newly securities licensed advisor
coming on board with www.pomplanning.net
brings in $2-$4 million a year in new money
(seasoned advisors bring in much more).
• After three years of using this platform, many
advisors will be at or over $10 million dollars.
• That’s $100,000 in annual reoccurring revenue.
Increased fixed sales
• POM Planning uses a three bucket approach where
bucket #1 is a fixed bucket (FIAs and/or EIUL).
• Unlike BDs who shun fixed sales,
www.pomplanning.net not only understands them,
but encourages their use.
• Because of this, many advisors who come on board
will double their FIA sales while at the same time
picking up AUM.
Bottom line
• If you do not have a 65 license and are not using
the best marketing platform/AUM platform I’ve
seen since entering the business, you are missing
out on the opportunity to generate significantly
more income.
• Income from AUM will be reoccurring and will grow
every year as you bring on new money and as the
money itself grows (in a protected manner so you
don’t have to worry about taking a 30-50% pay cut
in fees when the next stock market crash comes).
Better/more comprehensive advice
• I know this is 3rd on the list for this webinar, but #1
on my list is always providing the best advice to
clients.
• Advisors who are not securities license are at the
very least limited in the advice they can give.
• Non-licensed advisors tend to advocate that clients
put more money into fixed products than might be
prudent (because the advisor can’t make money
on the AUM side of the coin).
Continued
• Advisors who do things properly will have to tell
clients they can’t give advice about where to put
their money when it comes to the stock market.
• This leaves the client with the traditional terrible
alternative which is to get advice from a series 7
licensed advisor at a BD that may or probably
won’t put the client’s interest first (Ameriprise,
Wells Fargo, AG Edwards, Northwestern Mutual,
Mass Mutual, NY Life, Merrill, Morgan Stanley, and
even ones like LPL).
• By having a 65 you at least have a fighting chance
to provide the “best” advice to clients.
Should you learn about
tactically managed strategies?
• If you like the idea of offering clients strategies
that have much less risk than the S&P 500 and
mutual funds.
• If you like the idea of offering strategies that
historically (5, 10, 15, 20+ years) have destroyed
the returns of the MPT/balance portfolios and have
had similar returns to the S&P 500.
• If you want to offer strategies where when the stock
market crashes, you know your clients will be
protected from significant losses.
• Then you should learn about the tactically managed
strategies offered by www.pomplanning.net.
One more reason
My favorite TTM strategy vs. S&P 500 (drawdown chart)
My favorite TTM strategy vs. S&P 500 (rate of return)
RIA vs. IAR
• Most insurance agents who get a 65 will want to
be an IAR (investment advisor representative) that
works under an RIA (registered investment
advisor).
• With a 65 you can become your own RIA but there
is an added startup expense to that and then there
is the annual ongoing compliance expense.
• As an IAR, you use the approved material and go
forth to market and work with clients (pretty
headache free).
Objections to obtaining a 65
• I don’t want to be regulated.
– There is a big difference between having a series 7
under a BD and a 65 under an RIA.
– If you are an IAR under an RIA the compliance is much
less/different and is more the RIAs responsibility (they
get the audit)
– No big brother situation where you have to give out
your personal e-mail to avoid the BD from reading your
e-mails.
• I don’t want to take the 65 exam.
– Don’t worry about the exam, you can pass it.
Continued
• I’m series 7 licensed.
• I get this one a lot from those who have big books
of business with a BD.
• Sometime they just don’t want to deal with moving
the book (even if they determine that using
tactically managed strategies through
www.pomplanning.net is better for many of their
clients).
• Is that a client centered point of view?
Summary
• I really can’t give an insurance only licensed
advisor a reason not to get a 65.
– Doing so will
• help you provide more comprehensive advice to clients.
• help you avoid regulatory problems.
• help you generate significantly more revenue (both when gathering
AUM and through increased fixed product sales).
• As for those who have a Series 7 license, are you
truly working in an environment that allow you to
provide the “best” unbiased advice to clients?
• I imaging after looking in the mirror, many 7 licensed
advisors will come to the conclusion they are not. If
that is the case, I encourage them to get a 65 and
become truly “independent” advisors.
Why Obtain a
Series 65 License
and How Hard is
the Exam
© Examzone, Inc., 2014 All Rights Reserved.
www.examzone.com
Financial Services
Firms and Professionals
Broker-Dealer
Agent
Investment Adviser
Investment Adviser Rep
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Broker-Dealer
Agent
•In the business of
effecting transactions in
securities for account of
others
•Represents a BrokerDealer or Issuer
•Registers with Form BD
•Helps BD or Issuer effect
transactions in securities for
compensation
•Hires agents, principals
•Registers through U-4
•Or its own account
Issuer
Any person
who issues
or proposes
to ISSUE
any security
25
Broker-Dealer & Issuer
26
RIA and IAR
REGISTERED INVESTMENT ADVISER
RIA
INVESTMENT ADVISER REP
IAR
•Represents an RIA by:
•Compensated for advising on
securities investments:
•Managing accounts
•Making recommendations
•Portfolio Manager
•Determining recommendations
•Financial Planner
•Selling services of the firm
•Supervising IARs
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Protect Yourself from Regulations
• Anyone who advises anyone for compensation
to buy or sell any security may be working as
an un-registered adviser now!
– Hard to sell annuities without advising someone to
sell securities in order to buy your product
– If unregistered, could lead to sanctions and
disciplinary actions to be disclosed to public
indefinitely
28
Compensation Model
• Brokerage model is a transaction model
– Commissions = “eat what you kill”
– 12b-1 fees insufficient (25 basis points)
• Advisory model is a residual income model
– % of assets
• Existing client assets grow
• Referrals from clients build assets
– And so on . . .
29
Examples of RIAs
• Disclosure Brochure (ADV 2)
•
http://www.adviserinfo.sec.gov/iapd/content/viewform/adv/sections/iapd_AdvIdentifyingInfoSection.a
spx?ORG_PK=104973&RGLTR_PK=50000&STATE_CD=&FLNG_PK=01C60D1C0008016E03002
0A0049081B9056C8CC0
• Wrap-Fee Brochure
•
http://www.raymondjames.com/branches/iad/levelpaths/pdf/Level_Paths_Appendix_1_Wrap_Fee_Br
ochure.pdf
30
Fiduciaries
• Fiduciary
– Owes two-pronged duty to client
• Good Faith
• Loyalty
• Provide better services to your clients
– Knowing your competitors have to, as well!
31
Broker-Dealer:
The Sell Side of the Table
Broker-Dealer
Customers
MUTUAL
FUND
VARIABLE
ANNUITY
32
Investment Adviser:
The Buy Side of the Table
Investment Adviser
Clients
33
The Series 65 Exam
• Content Areas
•
http://www.nasaa.org/wp-content/uploads/2011/08/Series-65-Exam-Specification.pdf
– Economic Factors and Business Information
– Investment Vehicle Characteristics
– Client Investment Recommendations and
Strategies
– Laws, Regulations, and Guidelines, including
Prohibition on Unethical Business Practices
Series 65 Exam
• What it Takes
–
–
–
–
Textbook, Training Videos, Practice Questions
Ideally 6 – 8 weeks of part-time study
Pass “Go-No-Go” exams with 80% or greater
It’s a “competency exam”
• Must be able to adapt to unfamiliar scenarios
• Must go beyond mere memorization
• Must be able to apply the knowledge at basic level
35
Recommended Study Plan
• 6-8 Weeks
• 3-5 Days Per
Week
• 2-4 Hours Per
Day
36
© 2014 Examzone
Sample
Questions
Similar to Series 65/66 exams
37
Question 1
One of your clients wants to sell shares of stock only if they
drop to or below a certain price. If your client does not
need to specify an execution price, he should place a
A. Sell-limit
B. Market order
C. Sell-stop
D. Sell-stop limit
38
Question 2
An S-corporation is different from an LLC in which of the following
ways?
A. Annual shareholder meetings and minutes are required
B. Owners are personally liable for debts incurred by the
business
C. Owners receive more protection from lawsuits against the
business
D. Owners are called “members”
39
Question 3
Which of the following would allow a security to be sold in a state
without registration?
A. The selling agents represent the issuer of the securities
B. The security is common stock trading on the non-NASDAQ
OTC market
C. The firm selling the security is excluded from the definition of a
broker-dealer
D. The security is sold in a private placement
40
Why Examzone
LEARN THE SERIES 65 IN A WHOLE
NEW LANGUAGE ... ENGLISH!
• We make the material fun and
entertaining
•
All concepts are presented in PLAIN
ENGLISH!
•
No talking heads on the Training
Videos
OUR SERIES 65 FULL PACKAGE contains
the following products:
• The most easy to read Textbook
• Web-Based Streaming Video –
Learn at your PC or Mac
• ExamCram Online Practice Tests
and Quizzes
• DVD Training Video Set
•
Proven track record of getting
candidates to pass
• Two Series 65 Go / No Go Tests
© 2014 Examzone
41
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42
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• Go to www.examzone.com
• Go to Products -> Pass The
65
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In the Discount Code Field
• 15% Off the Series 65 Full
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• Good Until March 31, 2014
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43
Questions / Contact Details
Andrew Pacer
(855) 392-6227
apacer@examzone.com
44
Questions
• Roccy DeFrancesco, JD
Founder, The Wealth Preservation Institute
roccy@thewpi.org
269-216-9978