Who Regulates Financial Advisory in the USA?

Financial planners and advisors seem to spring up frequently these days, all claiming to be the best qualified to handle our personal savings and investments. While many of these professionals do indeed have the skills necessary to guide us towards our financial goals, it can still be difficult for us to tell who is qualified to do what, and how it is that we know we can trust this person that is going to be handling our money. By the end of this article, we’ll have cleared up that uncertainty by describing the bodies that regulate the financial advisory industry in the USA, and why it is that we can trust their licensed representatives.

The Financial Industry Regulatory Authority (FINRA) is in charge of keeping track of the licensing requirements themselves. By administering all of the exams that financial advisors must complete in order to qualify as a profession, they are in charge of keeping the academic standard at a high level. FINRA achieves this directive by offering a series of product-specific certification programs for advisors that allow them to licence an understanding of specialty investment products.

They then also record the results of these examinations so that consumers can keep track of who is exactly knowledgeable about what products. This means that any individual that has been registered under FINRA meets the national requirements of being a financial advisor, and aware of the academic environment to the fullest extent of their training.

While FINRA handles a wide range of licences for advisors to pursue, the North American Securities Association (NASAA) is strictly responsible for three regulatory exams that allow advisors to actually begin practicing their trade. By certifying professionals to practice within the states which they are licensed for (because each state has slightly different regulations), the NASAA ensures that individuals are legally allowed to operate within the legal contexts of the industry. From there, they also register representatives that have passed an exam that allows them to bill on an hourly basis, as opposed to on commission.

This designation sets aside those advisors that are competent to the point at which they are capable of managing a discretionary account, from those that are still in a position where they are required to be working with clients on a transactional basis. While the difference is subtle, it is important to recognize how the careers themselves pertain to a different kind of clientele. It is therefore because of the NASAA’s registry database that we are able to tell which advisors are suitable for dealing with us in our given location, and on what basis we are allowed to engage them.

Building up a professional level of financial literacy takes a respectable amount of time and dedication. By pursuing the financial designations necessary to enter the investments industry as a professional advisor, applicants must demonstrate an ability to learn, understand, and adapt within an ever changing market. These skills are developed through the study of economics, politics, and ethics, so as to provide the advisor with a general framework for evaluating the global environment.

This understanding all begins with a desire to learn, and usually progresses into a series of licensing examinations that can be pursued through both FINRA and the NASAA. Over the course of the next few articles, we’ll discuss exactly what is involved in taking each of these exams, and how it is that they can best be pursued.