The North American Securities Administrators Association (“NASAA”) recently adopted a new model rule on Investment Adviser Representative (“IAR”) requirements for Continuing Education (“CE”). The new model rule states any IAR registered under Section 404 of the 2002 Act (or 201 of the 1956 Act) is subject to the NASAA CE requirements during a given Reporting Period. According to NASAA, the new CE model rule program is meant “to promote regulatory compliance while also helping investment adviser representatives better serve their clients by remaining knowledgeable of current regulatory requirements and best practices.”[1]
The new CE requirement is intended to ensure IARs’ knowledge base and level of competence remains up to date. Other financial professionals – such as financial planners, real estate agents, and insurance agents – have CE requirements, and considering the IARs’ fiduciary responsibilities to their clients, as well as the ever-changing landscape of the securities industry, the new model rule will help IARs maintain a greater level of competence on behalf of their clients’ financial needs.
What are the new CE requirements?
The model rule has two components to cover products and practices, as well as ethics. IARs are free to choose the courses to fulfill the CE requirements so long as the content meets the credit requirements, and the CE course provider is approved by NASAA. Currently, any vendor, broker-dealer, investment adviser, or state may apply with their CE course material for approval by NASAA to be considered an approved CE course. NASAA will partnering with Prometric to standardize the content and estimates the CE program and materials will be approved and available by the end of the second quarter of 2021.[2] Professional designations will not be considered for exemptions to the CE requirements; however, the CE requirements attained as part of a professional designation might be applicable to the CE model rule requirements as long as the course provider and material are approved.[3]
Beginning in 2022, any IAR registered in a jurisdiction that has adopted the model rule will be subject to 12 CE credit requirements, of which 6 must be Products and Practices and 6 must be Ethics and Responsibilities. Newly registered IARs will not be required to fulfill the full 12 credit requirement in the calendar year in which they are registered but will be subject to the CE requirement in the next full calendar year. Any CE credits earned in excess of the requirement will not carryover to the next reporting period. [4]
There are also certain waivers available, including for IARs who are also registered agents with a FINRA member broker-dealer and the FINRA’s members continuing education requirements include Products and Practice requirements that meet certain baseline criteria for the reporting period; as well as credits for continuing education required of certain credentials completed by an IAR during the relevant reporting period.
What happens if an IAR changes firms, misses the credit requirement, or terminates registration?
Any CE credits earned and reported will be reflected in the IARs course transcript on CRD/IARD. If an IAR moves to another firm, the CE credits earned prior to re-registering with another firm will still apply towards the annual requirement. If an IAR does not meet the required 12 CE credits for the year, all credits earned in the following year will apply to the previous year’s deficiency until the requirement is met. For example, if only 9 hours are earned and reported in 2022, the first 3 credits earned in 2023 will apply to the 2022 credit requirements instead of 2023. Likewise, if an IAR terminates their registration and seeks to become re-registered within the two-year exam window, they will have to complete the CE requirements for each year they missed before becoming re-registered. However, in lieu of taking the CE courses, the IAR may re-take the Series 65 or 66 to satisfy the requirement.
In cases where the IAR is registered in multiple states, the successful completion of the minimum CE requirements in one state will apply to the other states. However, if an IAR’s home state has not adopted the model rule, and its CE requirements do not meet the model rule’s minimum, then the IAR will need to complete any remaining CE credit requirements to meet the model rule requirements adopted by any state in which the IAR is registered or is seeking registration. Likewise, a dually-registered IAR that successfully completes the FINRA CE requirements for broker-dealer agents will have satisfied the 6 credit requirements for Products and Practices.[5]
What happens if an IAR does not meet the CE requirements?
An IAR that reaches the end of the year without meeting the required CE credits will be renewed as “CE Inactive” until the credit requirements are met. If the IAR fails to meet the requirement for the prior year and ends the following year still listed as “CE Inactive”, they will not be eligible to renew their IAR registration. The IAR will be required to successfully complete and report all prior CE requirements to be eligible for renewal.[6]
Conclusion
The new NASAA model rule is a helpful step towards ensuring that IARs stay informed and knowledgeable as they continue to service their clients. By requiring annual continuing education on products, practices, ethics, and responsibilities, NASAA seeks to ensure investment advisory clients have an additional level of trust in their IARs. Investment Advisers will also have an array of options to choose from for their CE programs, as well as the opportunity to request course approval of either their own CE material to offer or third-party CE offerings.
For assistance with meeting the requirements of the new NASAA model rule, determining which courses will be the best fit for your continuing education program or any additional information pertaining to this model rule or for any other compliance assistance, please contact us at (619) 278-0020, or visit us at www.corecls.com.
Authors: Core Compliance & Legal Services, Inc. (“Core Compliance”). Core Compliance works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity firms and banks on regulatory compliance issues.
This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon regarding any particular facts or circumstances without first consulting with a lawyer and/or tax professional.
This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional.
[1] https://www.nasaa.org/56560/investment-adviser-representative-continuing-education-update-january-15-2021/
[2] Id.
[3] https://www.nasaa.org/industry-resources/investment-advisers/resources/iar-ce-faq/
[4] https://www.nasaa.org/wp-content/uploads/2020/10/NASAA-IAR-CE-Model-Rule.pdf
[5] Id
[6] Id