What it means
When you open an account at a brokerage and speak to an adviser about shares, bonds or funds, you are often talking to a registered representative. The title tells you that the person has met licensing standards and is overseen by both the firm and the regulator.
To register, a person typically takes qualifying examinations, such as the Series 7 in the United States, and is sponsored by a member firm. The firm becomes responsible for supervising their activity and keeping their record up to date.
Many representatives must also complete continuing education to keep their registration. Registered representatives are usually paid through commissions on trades, fees based on the assets they look after, or a salary with bonuses.
Because pay can depend on what clients buy, conduct rules require that recommendations be in the client's interest and that conflicts of interest be disclosed. A registered representative is not always the same as an investment adviser.
The two roles are regulated differently, and many people hold both registrations, so it is worth asking which hat the person is wearing when they give advice. The answer affects the standard of care you can expect.
Clients can check a representative's history through public databases run by the regulator, which show qualifications, employment and any disciplinary matters. This is a simple check that costs nothing and takes a few minutes.
It is worth doing before handing over any significant sum. Other countries use different titles and approval systems.
The common thread is that someone advising on or selling investments must be authorised, and the firm carries responsibility for their conduct. Readers outside the United States should look up the equivalent rules for their own country.
In practice
Real-world examples
Example 1
A small business owner wants to invest surplus cash of $200,000 and calls a brokerage. The registered representative asks about the owner's goals and timeline before suggesting a mix of bonds and funds. The owner checks the representative's record on the regulator's public database before signing, and keeps a copy of the written recommendation.
Example 2
A hospital pension committee uses a registered representative at a broker-dealer to buy treasury bills for its short-term reserves. The committee confirms the representative is licensed and that the firm is a member of the relevant industry body. The purchase is documented in the committee minutes, and the trade confirmation is filed for the auditors.
Example 3
A start-up founder who has just sold her company meets two professionals, one paid by commission and one by a flat fee. She asks each how they are paid and what conflicts they must disclose. She chooses the one whose pay does not depend on the products she buys, and she asks for the fee arrangement in writing.
Think of it
A registered representative is like a licensed estate agent. Just as you need a licensed professional to legally buy and sell property through official channels, you need a registered representative to buy and sell securities on public exchanges.
Case study
Seen in the real world
Cedarline Securities is an illustrative, fictional brokerage whose registered representatives were paid mainly on trading commissions. A branch manager noticed that one representative moved clients in and out of funds far more often than the others.
The compliance team reviewed the accounts and found that clients paid average commissions of $4,000 a year each with little improvement in returns. Several clients said they had not realised how much the activity was costing them. The representative had to complete extra training, and the firm changed its pay plan to reward long-term client outcomes instead of trading volume.
Cedarline also began sending clients a plain-English summary of how each representative is paid. In this illustrative story, complaints fell and client assets grew over the following year. The compliance team now reviews trading frequency every quarter and speaks to any representative whose clients trade far more often than the branch average. The firm found that these conversations were quick and usually led to a clearer written record of why each trade was suitable.
Watch out
Common mistakes
- Assuming a registered representative is legally obliged to act as a fiduciary in every situation, when the duties depend on the type of account and the local rules.
- Choosing an adviser without checking their record, when the regulator's public database is free and quick to use and may reveal past complaints.
- Ignoring how the person is paid, when commissions and fees shape the advice you receive and can create a pull towards frequent trading.
Questions
People also ask
What does a registered representative do?
They take orders, recommend investments and service client accounts through a regulated broker-dealer. They also answer client questions and keep records of recommendations.
Is a registered representative the same as a financial planner?
Not necessarily, as a financial planner may hold a different qualification and be paid differently, though some people hold several roles. Ask the person to explain exactly which licences and titles they hold.
How can I check whether someone is registered?
Search the regulator's public database for the individual's name, which shows their licences, employment history and any disciplinary actions. Check that the firm named is the one you are dealing with.