Tuesday, November 23, 2010

Unregistered Personnel

FINRA's website (http://www.finra.org/Industry/Compliance/Registration/QualificationsExams/RegisteredReps/Qualifications/p011102) posts this frequently asked question, "Can a firm hire unregistered individuals whose sole function will be to cold call potential customers?" The answer is, "yes, but . . . " Basically, these unregistered cold callers can only invite people to attend events where registered personnel can discuss investing with them, or ask if they'd like to meet with a registered representative in order to discuss investments or receive investment literature from the firm. Notice how in none of these cases would the cold caller be talking to people about investing. FINRA also says, "The firms employing unregistered persons to perform these functions must be sure these employees do not discuss general or specific investment products or services offered by the firm, prequalify prospective customers as to financial status, investment history, and objectives, or solicit new accounts or orders." What if the individual will only sell exempt securities, or will only sell to institutions? FINRA rules require him to register. An exempt security simply doesn't have to be registered. The representatives who sell them--whether to retail or institutional investors--must be registered. Can unregistered persons provide published quotes to the firm's customers? FINRA answers on their website, "If the operators provide published yield quotations only to the firm's clients, they do not have to be registered with FINRA in any capacity." As you'll see at the link above unregistered persons can not accept unsolicited orders for securities, but they can help existing clients perform transfers among different mutual funds within a family of funds. So, no, an unregistered assistant can not accept an unsolicited order to buy 1,000 shares of XYZ today, but he or she could help an existing client put in a redemption order to sell shares of her ABC Growth Fund and a purchase order to buy shares of the ABC Income Fund with the proceeds.
Will the Series 7 exam expect you to know which activities registered and unregistered persons can perform for their member firm? Yes. I think it's worth spending five minutes at the FAQ section mentioned above. You can never be too prepared for the Series 7.

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