What it means
A principal is a supervisor with legal responsibility for part of a securities firm's business. Regulators expect that a firm's activities are overseen by people who understand the rules, and the Series 24 exam tests that understanding across a broad range of topics.
The syllabus covers supervision of sales and trading, handling of customer accounts, advertising and communications, record keeping, new account procedures, and the supervisory rules that apply to the other areas of a securities firm's business. This wide scope is what makes it the general principal qualification, in contrast to narrower modules and limited principal exams.
For the business, having qualified principals is a condition of operating. A broker-dealer must designate principals for its activities, and a regulatory examination will check whether the right people hold the right registrations.
Without them, the firm may be unable to carry on some or all of its business. Candidates usually need to have passed a representative-level exam first, and the exam is generally followed by continuing education obligations.
Because the details of prerequisites and co-requisites are set by FINRA and revised from time to time, a firm's compliance team should confirm the current rules before registering anyone. The role comes with personal accountability.
Regulators can fine or suspend a principal who fails to supervise reasonably, not just the representative who committed the breach. This is why many firms invest in training and clear written supervisory procedures, and why principals need to document what they review and the actions they take.
A practical question for managers is how many principals a firm needs. There is no single number, but the firm must have enough qualified people to cover each location, product area and period of absence.
Holiday, illness and resignation all create gaps, so firms usually train backup supervisors before they are needed.
In practice
Real-world examples.
Example
A broker-dealer expands into corporate bond trading and needs a supervisor who can approve the new desk's procedures. The operations director confirms that the head of fixed income holds the principal registration. The desk starts trading once the procedures are signed off, and the principal schedules a first review of its trade blotter after thirty days.
Example
A branch manager at a regional brokerage reviews a weekly report of unusual trading by one adviser. Because she holds the general principal registration, she can escalate the matter and sign off on any restrictions. She records every step in the supervision log, so the firm can show later what was seen and what was done.
Example
A boutique investment bank hires a managing director who will oversee the firm's compliance with underwriting rules. The new hire's offer letter says that passing the principal exam is a condition of confirmation. The firm covers exam fees and a preparation course costing $2,500, treating it as a cost of the hire rather than a perk.
Case study
Seen in the real world.
Cedar Point Brokerage is an illustrative, fictional firm whose only general principal retired after thirty years. The owners had not planned a successor, and the firm suddenly found that it had no one qualified to approve new accounts or review trading.
The CFO listed the options: hire an external principal at roughly $200,000 a year, or train a senior internal adviser who had the experience but not the registration. She noted that an external hire would bring fresh skills but also a long search, a salary premium and a period of learning the firm's clients and systems. She chose to train, budgeting about $6,000 for study time and fees, and arranged a part-time consultant to cover the gap for three months.
The adviser passed and the firm resumed full operations. The illustrative lesson is that succession planning for regulated roles is a financial risk issue, because a missing registration can halt revenue. She also wrote a succession chart for all regulated roles, naming a backup for each. The chart is reviewed every year at the budget meeting.
Watch out
Common mistakes.
- Assuming principals are only senior owners, when many branch managers and department heads also need the registration.
- Letting the only qualified principal leave without a successor, leaving the firm unable to carry on regulated activities.
- Thinking the registration removes the need for written procedures, when regulators expect supervision to be documented.
Questions
People also ask.
What is the difference between a representative and a principal?
A representative deals with clients or trades securities, while a principal supervises those activities and is accountable for them.
Is Series 24 a prerequisite for everything?
No, other supervisory exams exist for narrower areas, such as sales supervision, options and financial operations, and a firm may combine several registrations across its team.
Do principals have continuing obligations?
Yes, registered individuals generally have to complete regulatory and firm element continuing education, and the details are set by FINRA.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related