Becoming a Registered Representative | 19
Becoming a Registered
JOINING THE John Lucky had just gotten out of college and was looking for a job. He
FIRM was an average student who didn’t yet have a plan for what to do with
his life. Some of John’s friends suggested he go into sales. John was
likable and enjoyed talking to people, so sales would probably be a
good fit. He thought about selling cars, electronics, or real estate; but
none of these jobs seemed especially exciting or interesting. Finally,
John had an idea. He was going to sell financial products. John was
going to look for a job as a stock broker.
For weeks, John looked through the newspapers. Eventually, he spotted
an ad for a financial sales position with Top Shelf Investments. John sent
in a resume and received a phone call to come in for an interview the
following Monday. Upon arriving at Top Shelf, John was asked to fill
out the firm’s standard job application that contained numerous ques-
tions about his past. Had he ever been convicted of a felony? Had he
ever been convicted of a securities related misdemeanor? Has he ever
been fired from another financial job? If so, why? John wondered why
Top Shelf wanted to know so much about him. He also began to worry
about the 3 speeding tickets he had just gotten in Texas during spring
John went into the office of Bill Druthers, the branch manager. Druthers
explained to John that he was applying for a position as a registered
representative (exam shorthand = RR) with Top Shelf. Druthers explained
that registered representative is the term regulators use for brokers
(salespeople) and many other professionals in the financial field such as
traders and investment bankers. Managers or supervisors must be
20 | Becoming a Registered Representative
registered as principals (Series 24 or 26 licensed). Although many broker-
age firm employees are required to obtain one or more securities li-
censes, Druthers explained that individuals working in a strictly clerical
capacity or those with no customer contact often do not have to be
licensed. John was surprised to learn that even Top Shelf must be
registered with the regulators as a broker-dealer.(We’ll discuss this con-
fusing term later.)
The Series 6 refers to brokers/salespeople as Registered Representatives (RRs).
Branch managers and supervisors are called principals.
Druthers went on to clarify that the position John was applying for
involved selling mutual funds and annuities for Top Shelf. He would
not be selling individual stocks or trading options. Assuming he passed
the required licensing exam (Series 6), John would be designated by the
regulators as an Investment Company/Variable Products Representa-
tive. Series 6 license holders are limited representatives and are not
permitted to sell individual stocks or bonds. John was told that his
primary focus would initially be the sale of mutual funds and other
“packaged products”, but if he wanted to sell stocks later, Top Shelf
would sponsor him for a Series 7 license. John also learned that he
would also need to obtain a state insurance licence to sell some of the
annuity products offered by Top Shelf.
Druthers told John that the regulators require an extensive background
check of any applicant wishing to take the Series 6 Exam, and that many
of the questions on Top Shelf’s job application were designed to weed
out candidates with problems that would prevent them from becoming
RRs. Under U.S. law, candidates with convictions for felonies or securi-
ties-related misdemeanors within the last 10 years would be statutorily
disqualified from becoming a broker. John was relieved to find out the
speeding tickets would not be an issue.
Any felony or securities-related misdemeanor conviction within the last 10 years will
disqualify you from becoming an RR. Please note you must be convicted, not simply
indicted or accused of a crime.
Filling Out the U-4
At the completion of the interview, Druthers handed John a stack of
papers to fill out. In the stack were fingerprint cards and a long
questionnaire titled Form U-4. Druthers explained that Form U-4 was
John’s application to become a Registered Representative. The form
would be sent to the National Association of Securities Dealers (NASD), a
Becoming a Registered Representative | 21
self policing industry body, and reviewed prior to John taking his test.
The Securities and Exchange Commission (SEC), a U.S. governmental
agency that oversees the entire securities industry, would also have
access to information on the document. John was cautioned to fill out
the U-4 accurately, since any deceptions or intentional omissions could
ruin his chance of becoming an RR.
License is Held By the Employing Firm
Assuming John passes, the license would be held for him by Top Shelf
as his employer. Industry rules require the license to be held by the
firm, not the individual. John must be working for a registered broker-
dealer (firm) to transact securities business. He cannot be a “free agent”
22 | Becoming a Registered Representative
in the securities industry. Top Shelf would also be required to designate
a principal to supervise John.
Taking The Test
Cheating: A Quick Ticket Out Of The Business
The Series 6 exam is challenging for most students. Many people are
under extreme pressure to pass, as a promotion may hinge on your
passing. Some people’s jobs may even hang in the balance. Whatever
your situation may be, let me give you one piece of advice: DON’T
CHEAT! The quickest way out of the brokerage business is to be caught
giving or receiving help during your test.
Exam Content is Top Secret
The regulators view exam content as strictly confidential. Don’t ask
your friends what they saw on their test and don’t tell anyone what you
saw on yours. While any discussion of specific exam questions is
obviously taboo, generic discussions (i.e., “I saw 5 questions on Roth
IRAs”) are prohibited as well. The friendly person you are trying to help
may spell the end of your brokerage career.
I Passed.. I’m a Broker! (Not Really)
The bad news is that passing the test does not mean you are “officially”
a broker. You cannot run home and start selling mutual funds to your
wealthy Aunt Tillie. All exam results will be reviewed by the NASD and
your firm will be notified as to your status. When the regulators are
satisfied, you will officially be designated a Registered Representative.
Becoming a Registered Representative | 23
Oh No ... My Best Friend Failed
Failure is unfortunate, but it’s not the end of the world. If your best
friend fails (of course you will pass), tell him not to give up. Most people
who fail the Series 6 underestimate the exam’s difficulty and don’t
devote enough time to studying. The good news is many people who
initially fail, pass on their second attempt. There is however, a mini-
mum waiting period to retake the exam.
Failure on first attempt = Wait 30 days
Failure on second attempt = Wait 30 days
Failure on third or later attempt = Wait 180 days
I Passed! What Can You Sell With A Series 6 License?
As previously stated, holders of the Series 6 license are known as
Investment Company Products/Variable Contracts Representatives.
With a Series 6 license, you are allowed to sell an assortment of pack-
aged products referred to as investment company securities. A mutual
fund is one type of investment company with which you may be
With the addition of any required state insurance license, you may also
be able to sell some of the riskier insurance related offerings called
variable contracts. Variable contracts are often used to provide life insur-
ance. For other customers, they are used to purchase a product called an
annuity, which is often confused with life insurance (discussed in
Chapter 12). All variable products are considered to be securities by the
regulators. Sales persons wishing to sell these products are required to
obtain a securities license (Series 6 or 7) and any applicable insurance
license to sell them. Variable products are riskier than traditional life
24 | Becoming a Registered Representative
insurance products because their return is not guaranteed by the insur-
ance company and the customer could lose money.
When you see the term “variable,” think risk. You must have a securities license to
sell these insurance and annuity products.
Below you’ll find a list of various brokerage products. We’ll discuss
each of these products in depth later in the manual. For now, it’s
enough to know which products Series 6 licensed individuals may and
may not sell.
Do I Need Anything Else?
Most states will require you to obtain a Series 63 license to meet their
own licensing requirements (often called “Blue Sky” registration). Your
firm may eventually ask you to get additional licenses that permit you
to sell other products. If you are required to obtain other licenses, don’t
begin studying for those tests until after you have passed the Series 6.
Let’s tackle one test at a time!
Continuing Education Requirements
Do you believe that the regulators are done with you once you have
passed your test? Think again! As a Registered Representative, you
must periodically participate in an industry-mandated continuing edu-
cation (CE) program. Continuing Education is a two-pronged program,
with one portion given by the regulators and the other given by your
The Regulatory Element is a computer-based training session created
by the regulators that is given to you in “test” format. RRs are given
Becoming a Registered Representative | 25
information on different sales practice, regulatory, and compliance is-
sues and asked to answer a series of questions on this information. All
information in the training module must be satisfactorily reviewed
within the allotted three-hour period.
RRs are required to take regulatory element training on the second
anniversary of their initial securities registration and every three years
thereafter (2nd anniversary, then 5th anniversary, then 8th anniversary,
then 11th anniversary, etc.). Brokers failing to complete the training
within a 120–day grace period from their anniversary date will have
their registration deemed “inactive.” RRs with an inactive status may
not perform in any capacity that requires a securities registration. They
are also prohibited from collecting compensation tied to their registra-
tion (i.e., commissions, etc.).
RRs must complete the Regulatory Element of CE within 120 days of their 2nd
anniversary and every 3 years thereafter.
The Firm Element of continuing education is required of any registered
person who has direct client contact (a.k.a. “covered persons”). This
requirement is ongoing. These covered persons could be salespeople or
employed in other areas of the firm such as trading or underwriting
(creating deals). Each year, all broker-dealers are required to evaluate
the firm’s training needs and provide training based on those findings.
Training should cover areas such as sales practices, suitability, product
information, and regulation, as opposed to sales skills and closing
What Happens If John Quits?
When RRs leave their employer, the firm is required to file Form U-5
with the regulators. This document officially gets the broker “off the
books” of the firm. If John goes to a different firm, the new employer
would need to file paperwork (an amended U-4) with the regulators to
officially place John on their roster.
If John leaves the business entirely, his license will be held by the
regulators for up to two years. Assuming John does not rejoin a firm
within this grace period, the license will expire.
RRs temporarily leaving the business have a 2-year grace period to rejoin the
industry. After two years they must retake the test (a.k.a. requalification by
26 | Becoming a Registered Representative
Home to Study
It’s a good idea to read John Lucky decided this was the business for him. He went home, filled
financial publications out all of his paperwork, and began to study for The Series 6 exam. He
as part of your Series took Mr. Druthers’ advice and studied every day. He compared his
6 exam preparation. progress against his study calendar. The material was difficult at first,
This reading will
but gradually became clearer as time passed. John even began to read
strengthen your under-
standing of the finan- the business section of his local paper to get a feel for industry jargon.
cial markets and
familiarize you with in-
Finally, the big day came. The test was long and hard. Some of the
questions looked unfamiliar. John had no idea if he was passing or
failing. After he finished his questions and reviewed some of the
tougher ones, John closed his eyes and hoped for the best. He was
pleasantly surprised to see a score of 82% on the screen.
When John got home, the first thing he did was call Mr. Druthers.
Druthers was happy to hear the good news and told John if he could
come in next week for orientation and training. John couldn’t believe it.
He was going to be a broker. Visions of new cars and expensive
vacations flashed through his mind. Suddenly a sobering thought oc-
curred to him...where was he going to find clients?!?
Becoming a Registered Representative | 27
COMPREHENSION Fill in the blanks in the following statements.
1. Under NASD rules, brokers are referred to
2. Branch managers and other supervisory personnel must be registered with
the NASD as .
3. Candidates possessing felony convictions within the last years
will be statutorily disqualified from registration.
4. Candidates failing The Series 6 exam on their first attempt must wait
days to retake the test.
5. Candidates failing The Series 6 exam on their third attempt must wait
days to retake the test.
6. Candidates must complete the regulatory element of Continuing Education
within 120 days of the anniversary of their initial registration.
7. Upon leaving the business, an RR’s registration will remain valid for a period
of up to .
28 | Becoming a Registered Representative
1. registered representatives or RRs
7. two years