Yes — in nearly all cases you need a license to invest other people’s money. If you give investment advice for pay, you generally must register as an investment adviser. If you execute securities trades for clients, you must register as a broker-dealer representative. Both paths require qualifying exams, registration with federal or state regulators, and ongoing oversight. The narrow exceptions are real but much tighter than most people assume, and operating without the right license can trigger fines, disgorgement, industry bars, and prison time.
When a License Is Required
The Investment Advisers Act of 1940 uses what the industry calls the ABC test. You are an investment adviser if you provide Advice about securities, do so as part of a Business rather than a one-off favor, and receive Compensation.1Office of the Law Revision Counsel. 15 USC 80b-2 – Definitions All three elements have to be present. Compensation is read broadly: advisory fees, commissions, performance-based pay, and indirect economic benefits like referrals in exchange for advice all count.
If the test is satisfied, registration is mandatory. Registered advisers also take on a fiduciary duty to each client, meaning they must act in the client’s best interest, disclose conflicts, and make sure recommendations fit the client’s situation. This is an enforceable legal standard, not a guideline.
Investment Adviser or Broker-Dealer Representative
The license you need depends on what you actually do with client money.
An investment adviser representative gives ongoing advice about securities and portfolio management for compensation. Advisers owe clients a fiduciary duty at all times during the relationship.
A broker-dealer representative, commonly called a stockbroker, primarily executes securities transactions on behalf of clients. Both the individual and the firm must register with the SEC and be members of FINRA.2FINRA. What It Means to Be Regulated by FINRA Since June 2020, broker-dealers have been held to Regulation Best Interest, which requires them to act in the best interest of retail customers when making a recommendation and to disclose conflicts.3Legal Information Institute. Regulation Best Interest (Reg BI) Reg BI is stronger than the old suitability standard but applies at the point of a recommendation rather than as an ongoing relationship obligation.
Many professionals hold both registrations so they can advise and transact for the same clients.
Where You Register: SEC or State
Advisers with $100 million or more in assets under management generally register with the SEC. Those below $100 million typically register with their home state’s securities regulator. A buffer zone between $90 million and $110 million keeps advisers from bouncing between regulators every time AUM moves slightly.4U.S. Securities and Exchange Commission. Remarks to the Annual Conference on Federal and State Securities Regulation
A few categories must register with the SEC regardless of AUM, including advisers to registered investment companies like mutual funds and ETFs, advisers registered or required to be registered in 15 or more states, and certain internet-based advisers. On the other end, an adviser whose clients all live in the adviser’s home state and who does not advise on nationally listed securities may be exempt from federal registration entirely.5Office of the Law Revision Counsel. 15 USC 80b-3 – Registration of Investment Advisers
Exams You Have to Pass
The exams depend on which role you want.
To Register as an Investment Adviser Representative
The most direct route is the Series 65 (Uniform Investment Adviser Law Examination), which costs $187 and covers portfolio management, economic factors, and ethical obligations.6NASAA. Exam FAQs Passing it qualifies you to register as an IAR with your state. You can also combine the Series 7 with the Series 66, which covers both state securities law and adviser topics.
Several professional designations may waive the Series 65 in states that follow the NASAA model rule: Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), Personal Financial Specialist (PFS), and Certified Investment Management Analyst (CIMA). Whether the waiver applies depends on your state, so confirm with your state securities regulator before skipping the exam.
To Register as a Broker-Dealer Representative
You need to pass the Series 7 (General Securities Representative Examination), which costs $395, with the Securities Industry Essentials (SIE) exam as a prerequisite.7FINRA. Series 7 – General Securities Representative Exam If you want to work as both a broker-dealer representative and an investment adviser representative, the Series 66 at $177 added to the Series 7 covers both.8NASAA. Series 66 Exam Content Outline
Passing the exams is only part of the process. Formal registration involves a background check, fingerprinting, and disclosures about your employment history, disciplinary record, and financial condition. You cannot legally conduct business until that registration is approved.
The Narrow Exemptions
People often ask whether they can skip registration because the situation feels informal. The exemptions are tighter than they sound.
Family and Friends
You can help family members or friends with their investments without a license only if you receive no compensation at all. Any form of payment — a flat fee, a cut of returns, or a regular gift understood as payment — satisfies the compensation element of the ABC test and makes registration mandatory.1Office of the Law Revision Counsel. 15 USC 80b-2 – Definitions
The De Minimis Exemption
An adviser can avoid registering in a particular state if they have no office in that state and had fewer than six clients who were residents of that state in the preceding 12 months.9Securities and Exchange Commission. Final Rule – Exemption for Certain Investment Advisers Operating Through the Internet It is a rolling 12-month count, and the exemption only excuses registration in that particular state. It does not exempt you from registering in your home state or with the SEC.
The Family Office Exclusion
A private entity set up to manage one family’s wealth can avoid registration if three conditions are met: it serves only family clients, it is wholly owned and exclusively controlled by family members, and it does not hold itself out to the public as an investment adviser.10Securities and Exchange Commission. Rule 202(a)(11)(G)-1 Family Offices “Family member” is defined generously, reaching descendants of a common ancestor up to 10 generations removed plus their spouses. The exclusion disappears the moment the office takes on a non-family client.
Private Fund Advisers
An adviser who exclusively manages qualifying private funds (hedge funds, private equity funds, venture capital funds) with less than $150 million in total U.S. assets under management may be exempt from full SEC registration.11eCFR. 17 CFR 275.203(m)-1 – Private Fund Adviser Exemption “Exempt” is a soft word here. These advisers still file with the SEC as Exempt Reporting Advisers, submitting a scaled-down Form ADV and remaining subject to SEC examination authority.
What Happens If You Operate Without a License
Civil penalties under the Investment Advisers Act are tiered by severity and adjusted annually for inflation. For basic violations, penalties reach roughly $10,800 per violation for an individual and $108,200 for a firm. When fraud is involved, those figures rise to about $108,200 per individual and $541,200 per firm. If the fraud caused substantial losses to investors, they climb to roughly $216,500 per individual and over $1 million per firm.12U.S. Securities and Exchange Commission. Civil Penalties Inflation Adjustments
Fines are only part of the exposure. The SEC can order disgorgement of every dollar of profit from the unlicensed activity. Courts can issue injunctions permanently barring you from the securities industry. A person convicted of certain misdemeanors or any felony faces automatic disqualification from FINRA membership for 10 years, which effectively locks them out of the industry.13FINRA. General Information on Statutory Disqualification and FINRA Eligibility Proceedings
Willful violations of the Investment Advisers Act carry up to five years in prison and a $10,000 criminal fine per offense.14Office of the Law Revision Counsel. 15 USC 80b-17 – Penalties And investors who were advised under a void, unregistered advisory contract can sue to rescind the agreement and recover their entire investment plus interest. Running without the right license risks unraveling every transaction you ever handled.
How Clients Verify a License
If you are on the other side of this question — trying to confirm that the person handling your money is actually licensed — two free government tools are available. The SEC’s Investment Adviser Public Disclosure database at adviserinfo.sec.gov lets you search any registered investment adviser firm or representative and view their Form ADV, employment history, and disciplinary disclosures.15U.S. Securities and Exchange Commission. IAPD – Investment Adviser Public Disclosure FINRA’s BrokerCheck does the same for broker-dealer representatives, including 10 years of employment records and any customer disputes, disciplinary actions, or criminal matters.16FINRA. About BrokerCheck If someone managing money cannot be found in either database, treat that as a serious red flag.