Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Registered Principal

What it is:

A registered principal is a person in a management position in the investment banking or securities business.

How it works (Example):

For example, a registered principal might oversee the trading and sales operations at a brokerage firm, manage an investment firm's compliance efforts, or simply oversee a financial institution's operations. The Financial Industry Regulatory Authority, better known as FINRA, requires registered principals to oversee activities like these, which means not just anybody can do the job.

To become a registered principal, a person must pass a FINRA Series 24 test in addition to the tests for basic securities licenses for broker-dealers. People who are registered options principals must also pass the FINRA Series 4 exam.

Why it Matters:

Registered principals are in many cases legally liable for mistakes, misdeeds or other trouble in their firms. For these reasons, they must take other administrative steps to actually get licensed or registered with state or federal securities regulators, and those regulators can apply the rules differently to people depending on their other professional designations and the state in which they live or do business. Registered principals must oversee the accuracy of their companies' regular filings to state and federal agencies, pay processing fees, maintain minimum net capital, and ensure that employees are properly licensed as well. The process may seem elaborate, but considering the influence investment advisors have over clients' financial affairs -- and the dreams associated with those financial affairs -- it's a good idea to make sure managers of financial institutions know what they're doing.