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Once a financial advisor has decided to go independent, a review of the business will be required to understand the types of investment products utilized in their practice. This review will help to determine if there is a need for a broker-dealer affiliation. Most advisors and staff leaving traditional financial institutions are heavily licensed due to the use of commissionable products. Under FINRA and under those firms' compliance rules, that may be true, but in the independent space, those rules change.

We educate on the methodology by which a business can operate as a fee-only offering, or whether commissionable payments will be important to your business and revenue profile. Generally, when we begin to explore the specifics of an advisor’s business, there are commonly asked questions around the nuances between the SEC and FINRA. For example, what licenses are required for specific products and actions, and what giving up those licenses could mean to your offering as an advisor? Many financial professionals fight to stay FINRA-registered and keep their licenses to retain an emotional state of security, not necessarily to manage a profitable business.

Let's begin with an overview of the SEC and FINRA to clarify the segregation of authorities in the RIA environment.

The Securities and Exchange Commission (SEC) is the primary regulator for securities markets and investor protection. It is a federal government agency established by the Securities Exchange Act of 1934.

The Financial Industry Regulatory Authority (FINRA) is not a governmental agency; rather, it's a "self-regulatory organization" with congressional authority under the SEC's regulation and oversight to supervise stockbrokers and brokerage firms. FINRA rules are subject to the review and acceptance of the SEC.

While the SEC functionally regulates almost all facets of securities markets from exchanges to mutual funds, private equity, and corporate reporting, let’s focus is on its regulation of Registered Investment Advisers (RIAs). The SEC is the primary regulator for RIA firms meeting the qualifications for federal registration (firms that do not must register at the individual state level). The Investment Advisers Act of 1940 serves as the core of requirements federally registered RIA firms must follow.