What it means
Many people who sell investments are already registered as securities representatives. If their only futures-related activity is to introduce clients to managed futures funds, where a professional manager makes the trading decisions, a full futures proficiency exam may be more than is needed.
Series 31 provides a tailored qualification. The exam concentrates on managed futures products.
It covers how commodity pools work, how managers are paid, the risks of leverage, the disclosures investors must receive, and the sales practice rules that apply. It does not cover the detailed mechanics of placing and clearing futures orders.
To use it, a person generally needs to be a registered securities representative sponsored by a member firm that is also a member of the futures industry body. The activity must be limited to soliciting participation in pools or discretionary accounts run by managers, so a person who wants to take orders for individual futures trades will usually need the full Series 3.
For investors, managed futures can offer diversification, since returns may behave differently from shares and bonds. They also carry high fees, often a management fee plus a share of profits, and the potential for large swings.
A well-trained representative explains these costs and risks clearly. Businesses that distribute managed futures, such as wealth managers, should keep track of which staff hold which qualifications.
The National Futures Association sets and updates the rules, so compliance teams should check the current conditions and not rely on past practice. From the investor's side, it helps to know how these products differ from a standard mutual fund.
Commodity pools may use leverage, can be harder to value and may impose limits on redemptions, which means investors cannot always take their money out when they wish. Representatives need to explain these features before a customer commits.
In practice
Real-world examples.
Example
A wealth management firm wants to offer a managed futures fund to high-net-worth clients. It checks that the advisers who will discuss the product hold the correct registrations. Those who do not have the full futures exam take the managed funds exam instead, and the firm tracks each adviser's status in a shared register.
Example
An adviser at a regional brokerage is asked by a client about a commodity pool. She realises she cannot discuss it until she holds the right qualification. She arranges to take the managed funds exam before the next client meeting, and tells the client she will return once she is properly qualified.
Example
A family office hires a representative to introduce a commodity pool to its investors. The CFO reviews the fee structure, which includes a 2% management fee and a share of profits. He asks the representative to explain how these fees reduce the investor's return in a flat year.
Case study
Seen in the real world.
Willow Bend Wealth is an illustrative, fictional advisory firm that wanted to add a managed futures fund to its product shelf. Its twelve advisers were all registered securities representatives, but none held a futures qualification.
The compliance officer weighed up the full futures exam against the managed funds exam. She also considered the time away from clients, since every adviser studying for a longer exam is an adviser not generating fees. Because the advisers would only introduce clients to a fund run by an outside manager, the narrower exam was suitable and took far less preparation time.
All twelve qualified within two months, and the product launched with $15,000,000 of client commitments in its first year. The illustrative lesson is that choosing the right-sized qualification speeds up a product launch. The compliance head kept a register of who held which registration and checked it each time a new product was added.
Watch out
Common mistakes.
- Assuming this exam lets someone place individual futures trades, when it is limited to soliciting participation in managed funds and accounts.
- Presenting managed futures as low risk because a professional manages the money, when leverage and fees can produce large losses.
- Overlooking the condition that the representative must be sponsored by an appropriate member firm.
Questions
People also ask.
What is a commodity pool?
It is an investment fund that pools money from many investors and uses it to trade futures and similar contracts under a manager's direction.
How does Series 31 differ from Series 3?
Series 31 is an alternative for people limited to managed funds, while Series 3 is the broader proficiency exam for futures professionals.
Why do fees matter so much?
In managed futures, management and performance fees can take a large share of returns, so a representative should show their effect in plain numbers, using an example such as a flat year in which fees still have to be paid.
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