Maryland has joined Mississippi and Vermont on a growing list of state jurisdictions using January 1, 2022, as the effective date for new continuing education (CE) requirements. Within those states, Investment Adviser Representatives (IAR) must annually complete twelve (12) CE credits.
IARs, within those CE-required states, who fail to meet the requirement will be cited as CE deficient and have until the end of 2023 to earn 24 related CE credits over a two-year period otherwise the individual’s securities registration will terminate.
Regulators in Michigan, Nevada, and Wisconsin have notified the North American Securities Administrators Association (NASAA) of their intent to adopt similar CE requirements with an effective date of January 1, 2023.
Maryland’s requirement applies to IARs of state- and SEC-registered investment advisory firms. When it formally announced implementation of its updated rule in December, the Maryland Division of Securities said IARs are tested for knowledge before they are registered, but there is no mechanism to ensure that their level of knowledge and competence is maintained or expanded.
According to NASAA, other financial professionals have long been subject to CE requirements, including broker-dealer agents, insurance agents, and Certified Financial Planners (CFPs). Given the significant role that IARs play in the financial lives of their clients, Maryland state regulators believed it was necessary to create a stringent CE program for their IARs.
The movement began in 2020, when NASAA membership voted to adopt a Model Rule to set parameters by which members could implement CE programs in their respective jurisdictions. It was seen as a way for states to promote heightened regulatory compliance while helping IARs better serve their clients by remaining knowledgeable of current regulatory requirements and best practices.
NASAA Guidelines for CE Requirements
NASAA guidelines define a CE “credit” as a unit that has been designated to have at least 50 minutes of educational instruction. The 12 credits must include 6 credits of Products and Practices and 6 credits of Ethics and Professional Responsibility.
There are no carryovers, so if you’re an overzealous IAR, you can’t calendar out all these courses over the next week and be done with it for the next two years.
NASAA’s Products and Practices CE component is focused on ongoing knowledge and competency related to investment products, strategies, standards, and compliance practices relevant to the investment advisory industry.
The Ethics and Professional Responsibility CE component emphasizes ongoing knowledge and competency related to an IAR’s duties and obligations to his or her clients including, but not limited to, issues related to the fiduciary duty owed to each client. Every Ethics and Professional Responsibility course must have at least 50% of its material related to an IAR’s ethical responsibility. Therefore, by taking all 6 credits, the IAR meets the three credits of ethics required by the NASAA’s Model Rule. If course providers cannot certify that content on ethical responsibility is covered or if content reviews determine that content on ethical responsibility is insufficient, those courses will not be approved by state regulators.
Each IAR will have a course transcript maintained and tracked in the Financial Industry National Regulatory Authority’s (FINRA’s) Central Registration Depository (CRD).
The idea of mandatory CE requirements is not an issue of “if,” but “when” as regulatory changes within the securities industry occur more often than not. The potential and/or consequence of having your individual license terminate should be sufficient motivation for every IAR to be diligent in checking with their compliance department about applicable state registration requirements.
Keeping track of changing state registration requirements represents another challenge for compliance departments in 2022. The team at Core Compliance can help simplify your CE-related responsibilities while you remain focused on your client base. To help build your training and CE strategy, contact us here or at (619) 268-0020.