ADVISER WANNABES TO FACE TOUGHER TEST: WITH NEW EXAM, YOU GOTTA CRAM

It’s about to get a lot harder to call yourself an investment adviser.

State regulators are putting the final touches on a new — and much more rigorous — investment adviser representative exam to replace the Series 65. That exam covers only state law and ethics; the new one includes sections on financial products and investment issues.

In both scope and difficulty, the new Series 65 will be much more like the Series 7 exam for broker representatives than it is now.

While advisers holding certain professional designations may be exempt from the new test, it’s not yet clear which ones — and the decisions will be made state by state. But the North American Securities Administrators Association plans to recommend that those who passed the old test be grandfathered.

“We will be testing for areas of knowledge that are unique to the investment adviser field,” says Richard Cortese, Vermont’s securities administrator and a member of the regulators group’s investment adviser competency committee. “It will be hard. You will have to study.”

The group hopes to roll the new test out by the middle of this year as part of its drive to impose tougher standards on the mushrooming investment adviser field, and to crack down on the fraud that’s accompanied that expansion. There are an estimated 200,000 advisers in the country. Between 9,000 and 12,000 annually have sat for the Series 65 in recent years.

The association, which represents state and provincial securities regulators, and the Securities and Exchange Commission also are compiling a national database of investment advisers, expected to be running by late next year.

The National Association of Securities Dealers will operate the registry but not regulate advisers.

The Institute of Certified Financial Planners supports the new test but wants advisers who have passed the certified financial planner exam to be exempt from it, while the Securities Industry Association doesn’t want its members to have to take another exam on top of the Series 7.

“These guys (brokers) already know this stuff,” says Daniel Barry, vice president and counsel for state government affairs for the trade group.

In response, the regulators group has agreed to develop a “Series 65 Lite” exam — basically a revised Series 66 — for licensed brokers that will eliminate much of the content that overlaps with the Series 7 exam. Still, the SIA has reservations, particularly about states that require brokers who solicit wrap account business to be registered investment advisers.

The new test will have 130 multiple choice questions in four sections: economics and analysis, investment vehicles, investment recommendations and strategies, and ethics and legal guidelines.