Earlier this year, the North American Securities Administrators Association, Inc. (“NASAA”) proposed a new model rule that would require investment adviser representatives (“IARs”) to complete a specified amount of continuing education (“CE”) credits each year. The proposed model rule would apply to every IAR registered in a state that adopts the model rule, including IARs associated with state registered investment adviser firms. It would also cover IARs for federal covered advisers (i.e. SEC-registered advisers) to the extent that those IARs are registered in a given state.
As currently proposed, the model rule would require IARs to complete a total of 12 credits of continuing education each reporting period, typically one year. Of these credits, six would need to focus on “Products and Practices” and six on “Ethics and Professional Responsibility.”
The proposed model rule is intended to help ensure that IARs can competently and ethically serve their clients. Unlike in related industries, there is currently no uniform requirement for investment adviser representative continuing education. To read the proposed IAR CE model rule and NASAA’s initial request for comments, click here.
Common Questions About the Proposed IAR Continuing Education Rule
1. How would the rule affect IARs registered in multiple jurisdictions?
Since IARs are not regulated on a national level, each state must adopt the proposed model rule, which states can elect to do “as is” or with changes. Consequently, an IAR registered in multiple states could face varying requirements in each state, making it difficult for the IAR to track and comply with the differing rules. It would be ideal, though unlikely, for the proposed model rule to be adopted uniformly by every state.
Under the proposed model rule, states would consider an IAR to be in compliance with the rule provided that (1) the IAR’s home state (i.e. where the IAR has its principal office and place of business) has adopted CE requirements at least as stringent as the proposed model rule, and (2) the IAR is in compliance with those CE requirements.
2. Who is responsible for reporting IAR CE?
In its current form, the IAR CE proposed model rule places the obligation to complete and report CE on the individual IAR, although CE course providers would also track and report attendance. NASAA is currently working with FINRA to develop the capacity to track and report IAR CE through IARD.
Under the terms of the proposed model rule, failure of the IAR to comply would ultimately result in the IAR’s inability to renew their registration with the state securities regulator. During the first year of non-compliance, the IAR’s registration would renew as “CE Inactive”. If the IAR did not complete and report all required CE by close of the following year, they would not be eligible to renew their IAR registration.
The proposed model rule does not require the investment adviser firm to supervise, enforce, or maintain books and records relating to the investment adviser representative continuing education. As a practical matter, however, an investment adviser firm would need to proactively monitor IAR compliance with the rule in order to ensure its IARs maintain good standing with the state securities regulator(s) and are able to renew their IAR registration each year.
3. Will dually registered IARs (i.e. individuals who are both an investment adviser representative and a registered representative of a broker-dealer) be required to obtain IAR CE in addition to existing CE requirements for registered representatives (“FINRA CE”)?
It is likely that at least some of the FINRA CE would be eligible to count for IAR CE. Under the proposed model rule, NASAA would need to evaluate FINRA’s CE program to ensure it meets NASAA’s standards before permitting dual credit from FINRA CE, namely:
- The continuing education content focuses on compliance, regulatory, ethical, and sales practices standards.
- The continuing education content is derived from industry rules, regulations, and accepted standards and practices in the investment advisory industry.
- The continuing education content requires its participants to demonstrate proficiency in the subject matter of the educational materials.
To the extent that FINRA CE is found satisfactory by NASAA, it could be counted toward the IAR CE “Products and Practice” credits. A dually registered IAR would still need to complete at least six credits of “Ethics and Professional Responsibility” IAR CE approved by NASAA.
4. Will IARs who hold a professional designation that currently requires CE be required to obtain IAR CE in addition to their existing CE requirements related to the professional designation?
Similar to dually registered IARs above, under the model rule IARs with professional designations would be able to use their professional designation CE to satisfy the IAR CE obligation – but only to the extent the course and the CE provider have been reviewed and approved by NASAA.
5. Would an IAR be permitted to carry forward any excess credits completed during one reporting year to following years?
Under the current terms of the proposed model rule, an investment adviser representative who completes IAR CE in excess of the amount required for the reporting period would not be allowed to carry forward excess credits to a subsequent reporting period. However, NASAA has sought comment on this issue and may adopt changes in the final model rule.
Newly registered IARs would not be expected to comply with the IAR CE requirements until the individual’s first full reporting period after registration.
6. What programs or courses could count toward the IAR CE requirement?
Under the proposed model rule, NASAA would be responsible for developing criteria to evaluate potential courses for IAR CE credit. Such evaluations could then be carried out by NASAA or delegated to a third party vendor. The IAR CE model rule is intended to allow maximum flexibility and NASAA has indicated anyone could become an approved course provider, provided the course meets NASAA’s standards.
Courses will be evaluated on the following criteria:
- Ability to meet the learning objectives and goals of IAR CE;
- Quality of instructors and materials;
- Qualifications of instructors;
- Experience in delivering educational content, such as training or CE;
- Prior customer/student evaluations;
- Timeliness of content;
- Ability to track and report course/content completion; and
- Prior experience in the financial services industry.
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NASAA has not yet finalized the proposed model rule and is currently evaluating public comments and developing the framework needed to implement the rule. Before the proposed model IAR CE rule could become effective in your state, it must be finalized by NASAA, which will then recommend the model rule for adoption by states. Full implementation, which requires NASAA to review and approve courses and also requires coordination with FINRA’s IARD system for tracking and reporting CE credits, is not expected prior to 2021.
If your state registered or SEC registered investment adviser firm is an existing client of RIA Compliance Consultants and has questions about NASAA’s Proposed Model Rule for IAR Continuing Education, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.
Resources
IAR CE – Tracking Spreadsheets – https://www.ria-compliance-consultants.com/product/iar-ce-tracking-spreadsheets/
Posted by RCC
Labels: Investment Adviser Rep Continuing Education, NASAA
