Unlike a registered representative of a broker-dealer, an individual investment adviser representative ("IAR") of a registered investment adviser ("RIA") firm is presently not required to complete any continuing education in order to maintain their individual license to provide investment advice. However, the North American Securities Administrators Association ("NASAA") is currently considering the creation of a new model rule which would serve to close this "investor protection gap." Presently, NASAA is seeking industry feedback "to develop a responsive and relevant continuing education program to help investment adviser representatives more safely and competently serve their clients."
The Role NASAA Plays in the Introduction of a new IAR CE Requirement
Depending on the feedback from an industry survey and other considerations, state securities regulators could soon decide to introduce a new NASAA Model Rule related to continuing education for investment adviser representatives ("IAR-CE"). While still in the preliminary stages, NASAA notes that 46 NASAA member jurisdictions (i.e. various states) already have the ability to impose an IAR CE requirement through expressed or implied statutory authority. However, even if a NASAA IAR CE Model Rule was passed, each individual state would need to approve and implement the rule on a state by state basis before the rule would be applicable to IARs. While such a process does take time, NASAA has previously seen many past model rules adopted widely and quickly throughout the various states.
As of now, NASAA believes that the potential future CE requirement for IARs could be met "either through the state’s continuing education program or through a combination of professional designation continuing education and the state program." Of the more than 340,000 current IARs registered across the country, NASAA estimates that less than 20% are not receiving any type of continuing education today. Thus, the vast majority of the over 340,000 currently registered IARs do already receive CE to meet a professional designation (e.g. Certified Financial Planner, Chartered Financial Analyst, etc.) or broker-dealer FINRA license requirement.
Potential IAR CE Requirements and Costs
While no decisions have been made yet, it is possible that any new IAR-CE requirements would be required to be met on a "periodic basis" by needing to reach a certain number of CE hours every year or two. NASAA also notes that it is sympathetic and "mindful of the costs of compliance" related to this potential new regulatory requirement. In particular, state regulators recognize that many RIA firms operate as sole practitioners and may already have other professional designation CE requirements that could potentially at least qualify to meet some of the new IAR-CE requirements to help reduce costs.
It's also possible that NASAA will explore different potential delivery methods for this new potential requirement. For example, the ability to satisfy this requirement with online courses and education versus in-person education and training. It's also feasible that if this initiative does proceed, individual states may ultimately differ in their CE requirements and delivery methods.
Next Steps for an Investment Adviser Representative CE Requirement
While there is no current published timeline, the following next steps are likely should NASAA choose to proceed with an IAR CE Model Rule:
- Information is gathered and review from the current industry survey with responses due by March 31, 2018
- NASAA introduces a proposed model rule subject to internal and public comment periods
- A final NASAA model rule is introduced along with any continuing education framework
- The NASAA model rule is adopted by individual states
We believe this new model rule should be welcomed and supported by the investment adviser industry and would serve to address key concerns related to a potential regulatory gap as it relates to the continued training of individual investment adviser representatives. As such, while hard to predict an exact timeline, the RIA industry should expect a new IAR-CE rule to be adopted by almost, if not all states in the coming years.
It's also important to remember that the licensing and registration of individual advisers is managed at the state regulatory regulatory level regardless if the affiliated RIA firm is registered at the state or federal level. Thus, it should be assumed that a new IAR-CE rule would apply to IARs registered to both state and federally-registered RIA firms.
RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.